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Author: 


Clark,  Harlow  C. 


Title: 


Service  at  cost  plans 


Place: 


New  York 

Date: 

1920 


.A 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATION  DIVISION 

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Clark,  Harlow  0. 

Service  at  cost  plans;  an  identical  analysis  of  statutes,  ' 
ordinances,  agreements  and  commission  orders  in  effect 
or  proposed,  together  with  a  discussion  of  the  essentials 
ot  local  transportation  franchises.    By  Harlow  C.  Clark    . 

'  ••  ^'       .2.^^^'  ^'  ^'^  American  electric  railway  asso- 
ciation,  1920. 

vi,  3-315  p.    24''". 

Reprinted  in  part  from  the  Aera  magazine. 

1.  Service  at  cost  (Public  utilities)    2.  Street-railroads-Finance. 

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Columbia  Winibttiitp 


LIBRARY 


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SERVICE   AT   COST    PLANS 


An    Identical   Analysis   of   Statutes,   Ordinances, 

Agreements    and    Commission    Orders    in 

Effect,     or    Proposed,    together    with 

a  Discussion  of    the  Essentials 

of    Local    Transportation 

Franchises. 


By  HARLOW  C.  CLARK 
Editor  of  Aera 


Published  by 

AMERICAN  ELECTRIC  RAILWAY  ASSOCIATION 
'  8  WEST  40TH  STREET 

NEW  YORK,  N.  Y. 
1930 


o 


O 


irt 


CONTENTS. 


FOREWORD 


Page 
3 


9 


Copyright,   1920  by 
American  Electric  Railway  Association 


S^O^^ 


CHAPTER  ONE  —  The  Essentials  op  a  Franchise 

The  Relation  of  Local  Transportation  Service  to  Community  Life 
and  Community  Development  —  Elements  of  The  Electric  Railway 
Problem  —  What  Is  Required  to  Attract  and  Retain  Private  Enter- 
prise in  the  Public  Service  —  What  the  Public  Seeks  from  Private 
Enterprise. 

CHAPTER  TWO  —  Public    Utility    Capital 

Normal  Capital  Requirements  of  Local  Transportation  Enterprises 
—  Present  Time  Requirements  —  From  Whence  to  be  Obtained  — 
l<\inctions  of  Investment  Bankers,  Holding  and  Management  Corpo- 
rations —  The  Ultimate  Investor  —  Conditions  Under  Which  He  Will 
Loan  His  Capital. 

CHAPTER  THREE  —  Risk   of   Supercession 13 

Risks  to  Which  Local  Transportation  Investment  is  Liable  — 
Supercession  —  How  It  Can  Be  Eliminated  —  The  Advantages  of  a 
Transportation  "  System "  Conducted  by  a  Single  Agency  Unre- 
stricted as  to  the  Character  of  the  Vehicle  Used  —  Motor  Transport 
as  an  Auxiliary  to  Electric  Rrailways. 

CHAPTER  FOUR  — Risk  of  Termination 17 

Risks  to  Which  Local  Transportation  Investment  is  Liable  —  Ter- 
mination of  Right  to  Conduct  Business  Without  Provision  for  Re- 
covery of  Investment  —  Franchises  as  a  Protection  to  Investment  — 
Effect  of  Term,  or  Period  —  Necessity  of  Amortization  when  Period 
Is  Short  —  Importance  of  Credit  —  Protection  of  Public  Interest 
with  Long  Term  Franchises  —  The  Indeterminate  Permit  Considered. 

CHAPTER  FIVE  —  Risk  op  Attrition 23 

Risks  to  Which  Local  Transportation  Investment  is  Liable  — 
Attrition  of  Physical  Property  —  Must  Be  Compensated  from  Reve- 
Mie  — Am  Operating  Cost  and  Not  a  Charge  Against  Profits  —  Can- 
not be  Provided  For  Through  Current  Maintenance  —  Necessity  for 
Adequate  Reserves  —  Public's  Interest  Protected  by  Such  Reserves  — 
The  Position  of  the  Industry  upon  Depreciation. 

CHAPTER  SIX  —  The  Investor's  Requirements 27 

Return  —  Investor's  Power  to  Prescribe  Return  — His  Three  Pri- 
mary Requirements  — The  Cost  of  Money  — Its  Effect  upon  the  Cost 
of  Service  —  Assurance  of  Return  Dependent  upon  Revenue  —  Sources 
of  Revenue  —  Public  Contributions  and  Public  Imposts  —  What  the 
Community  Owes  the  Car  Rider  — Public  Subsidies. 

ill 


IV 


Contents 


CHAPTER  SEVEN  -  The  Pbovision  of  Revenue gg 

Return -Revenue  from  Upeiation  -  Price  Dependent  Upon  Cost 
-- Elements  of  Ooi^t- Power  of  Ent^rpri^  to  Control  -A  ece^aity  oi 
Automatic  Adjustment  — Delay  in  Adjustment  and  Its  Etlect  — 
Determination  of  Proper  Rate  Not  Difficult  -  Fare  Systems  and 
RateB  of  Fare -The  Prevention  ol  Frequent  Fluctuations  in  Kates. 

CHAPTER  EIGHT  —  Management  and  Contbol ^^ 

Management  as  Distinct  from  Capital  a  Necessity  U>'  the  EnteV- 
prise  — Its  Nature— Cannot  Be  Obtained  wiUiout  Reward  — Its 
Relati.«i  to  the  Car  Rider  —  Provision  ot  Incentive  -  Regulation 
juwl  Management  -  Theory  of  Regulation  -  stale  and  Local  Regu- 
lation-Importance of  Public  Co-operation— Supervision  versus 
Management -Authority  and  Responsibility  Inseparable  -  Limi- 
tation of  Public's  Right  to  Demand  Service  -  Control  over  Oper- 
ation —  Maintenance  —  Finances  —  Arbitration. 

CHAPTER  NINE  —  Existing  Plans  Considered 53 

Six  Essential  Principles  Governing  Relations  Between  Communi- 
ties and  Private  Enterprise  Engaged  in  Local  Transportation  Service 
—  Extent  to  Which  They  Are  Applied  in  Existing  or  Proposed  Serv- 
ice  At  Cost  Plans  — Inclusive  and  Exclusive  Rights  —  Indeterminate 
Permits  —  Provisions  for  Proper  Maintenance  —  Assurance  of  Re- 
turn  — Flexibility  in  Rate  of  Return  —  Reward  for  Management. 

SERVICE  AT  COST  PLANS  IN  EFFECT. 

iNTBODUCnON     «- 

67 

General  Conditions. 

Life _ 

Renewal    -^ 

Forfeiture    -t* 

* 1 4 

Public  Pubchase. 
By  the  City 

When  purchase  can  be  made yg 

Terms  of  purchase yg 

By  Licensee  of  City 

When  purchase  can  be  made 34 

Terms  of  purchase gg 

Contbol. 

Corporate  autonomy g* 

Of  service 

Within  municipality  g| 

Outside   of   municipality : ^^ 

Of  construction,  maintenance  and  repairs 95 

Of  extensions,  betterments  and  permanent  improvements 

Defiyiitions    go 

Within  municipality jqq 

Outside  of  mundcipality ]  jofi 


Contents 


SERVICE  AT  COST  PLANS  IN  EFFECT  —  Continued. 
Contbol  —  Continued. 

Of  oapitalization,   finances   and   accounts  PAGE 

Ordinary  expenses 107 

Securities 109 

Bookkeeping    Ill 

Of  methods  and  practices 113 

Use  of  tracks  and  facilities  by  other  companies 115 

Machinery  of  control 

Power,  where  lodged 118 

Administration    121 

Powers  and  duties  of  administrative  body 125 

Arbitration 

Machinery   for 141 

Powers  of  arbitration  authorities 140 

Penalties 156 

Expenses  of  arbitration 158 

Retuen 

Initial  value 159 

Added  value 162 

Deductions  from  value 167 

Rate  of  return,  normal 171 

Additional   allowances    174 

Assurances  of  return 175 

Cost  op  Service 

Definition  of   178 

Allowances 

OperaJting 187 

Maintenance 

Definition 189 

How  fixed   191 

Depreciation 195 

Special  tax  and  impost  features 199 

Fares 

Schedules  of   20.3 

How  fixed   212 

Transportation  op  Freight,  Express,  etc 223 

Special  Provisions    225 

SERVICE  AT  COST  PLANS  NOT  IN  EFFECT. 

Introduction    , 229 

General  Conditions. 

Life    231 

Renewal    232 

Forfeiture 232 

Public  Pubchase. 
By  the  City 

When  purchaee  can  be  made 284 

Terms  of  purchase 286 


^  Contents 

SERVICE  AT  COST  PLANS  NOT  IN  EFFECT  —  Continued 
PUBUC  PuBCHASE  —  Continued. 

By  Licensee  of  City  ^^^^ 

When  purchase  can  be  made 238 

Terms  of  purchase 239 

Control. 

Corporate  autonomy   240 

Of  service 

Within  municipality  241 

Outside  of  municipality 242 

Of  extensions,  betterments  and  permanent  improvements 

Definitions    243 

Within  municipality 244 

Outside  of  municipality   250 

Of  capitalization,  finances  and  accounts. 

Ordinary  expenses    250 

Securities    251 

Bookkeeping    255 

Of  methods  and  practices 258 

Use  of  tracks  and  facilities  by  other  companies 2«0 

Machinery  of  control 

Power,   where   lodged ^62 

Admanistration    263 

Powers  and  duties  of  administrative  body 267 

Arbitration 

Machinery   for 273 

Powers  of  arbitration  authorities 276 

Penalties 276 

Expenses  of  arbitration  277 

Retubn  

Initial  value  277 

Added  value 279 

Deduction®  from  value  281 

Rate  of  return,  normal 285 

Additional  allowances    286 

Assurance  of  return   286 

Cost  of  Service. 

Definition  of 287 

Allowances 

Operating 293 

Maintenance 

Definition    293 

How  fixed  294 

Depreciation 205 

Special  tax  and  import  features 298 

Fabbs 

Schedules  of  301 

How  fixed   , , 3Q4 

DmrspQBTAnoir  or  FUeiort,  Eznomsi  wo 310 

BncuL  Pionsioifs  , ! !  812 


FOREWORD 


It  is  essential  to  the  continuance  of  private  enterprise  in  local 
transportation  service  that  the  credit  of  the  companies  engaged 
in  the  undertaking  he  re-established  on  such  a  basis  as  will 
attract  the  new  capital  necessary  for  the  growth,  development  and 
expansion  of  the  facilities  through  which  the  service  is  furnished. 

This  problem  of  readjustment  is  acute  in  practically  all  Ameri- 
can cities  and  communities,  and  is  receiving  the  attention  of  the 
National  and  various  State  and  local  governments  as  well  as  busi- 
ness and  civic  organizations.  As  a  means  of  readjustment  and  for 
the  purpose  of  assuring  to  the  utilities  such  revenues  as  will  restore 
their  credit,  while  protecting  the  public  from  excessive  charges, 
a  number  of  communities  have  provided  for  the  conduct  of  these 
utilities  under  so-called  "  service  at  cost "  plans,  while  a  number 
of  other  communities  have  such  plans  under  consideration. 

It  is  in  order  that  the  public  and  the  operators  of  local  trans- 
portation utilities  may  have  in  convenient  form  the  principles  and 
the  details  of  the  various  cost  of  service  plans,  both  those  which 
are  now  effective  and  those  which  have  been  prepared  but  which 
for  various  reasons  have  not  become  operative,  that  the  following 
study  was  undertaken. 

It  consists,  first,  of  a  consideration  of  the  fundamentals  which 
must,  if  private  capital  is  to  be  secured,  underlie  any  expression 
of  legal  right  to  conduct  a  local  transportation  utility  and  the  pro- 
visions of  statutes,  ordinances  or  commission  orders  governing  the 
relations  between  such  utilities  and  the  communities;  second,  an 
analysis  of  the  various  measures  with  the  idea  of  ascertaining  the 


, 


^  FOBKWOED 

extent  to  whicli  such  principles  have  been  applied ;  third,  an  identi- 
cal  analysis  of  the  cost  of  service  plans  now  in  effect,  similar 
provisions  being  grouped  together  in  order  that  the  provisions 
covering  any  particular  point  may  be  quickly  ascertained,  and, 
fourth,  a  similar  analysis  of  service  at  cost  plans  proposed  but  not 
effective. 

The  section  covering  plans  already  in  effect  is  a  regrouping  of 
material  that  has  from  time  to  time  apj^ared  in  Aera.  The 
remainder  of  the  text  is  new.  Although  pu])lishod  by  tlie  Associa- 
tion, the  author  and  not  the  Association  or  any  of  its  committees 
is  responsible  for  the  opinions  expressed. 


CHAPTER  ONE 

The  Essentials  of  a  Franchise 

The  Relation  of  Local  Transportation  Service  to  Community  Life  and 
Community  Development  —  Elements  of  The  Electric  Railway  Problem  — 
What  Is  Required  to  Attract  and  Retain  Private  Enterprise  in  the  Public 
Service  —  What  the  Public  Seeks  from  Private  Enterprise.     • 

With  the  exception  of  water  and  sewers,  local  transportation  is, 
for  eitios  of  any  considerable  size,  the  most  essential  of  all  public 
utilities.  The  widely  spreading  city,  with  its  segregation  of  busi- 
ness from  residential  districts  in  order  that  each  may  in  point  of 
character  and  development  best  serve  its  own  purpose  and  best 
meet  the  common  need  as  to  health,  comfort  and  convenience,  is 
jorsible  only  by  reason  of  local  transportation.  Its  extent  and 
character  determines  the  manner  in  which  communities  develop. 
Without  rapid  transit,  cities  like  New  York,  Chicago,  Boston  and 
Philadelphia  are  impossible.  Deprived  of  it,  they  would  split  up 
into  smaller,  self-contained  communities,  or  congestion  greater 
fliiiii  anything  now  known  would  ensue. 

A  Transpartation  System  the  Requisite.— A  transportation 
"  system,"  and  not  merely  the  provision  of  transportation  units, 
is  one  of  the  primary  requisites  of  a  community.  The  social  func- 
tion of  local  transportation  is  its  most  important  function.  The 
system  must  extend,  expand  and  improve  in  pace  with  community 
requirements  and  in  conformity  with  a  considered  plan  and  not 
at  haphazard. 

Cities  develop  as  their  local  transportation  facilities  develop. 
Urban  population  conforms  to  transportation  lines,  as  the  growth 
of  nations  has  followed  the  path,  first  of  their  waterways,  then 
of  their  highways  and  finally  of  their  railroads. 

"  City  planning  "  which  involves  city  development  along  lines 
which  furnish  to  the  public  the  maximum  of  healthful  living  con- 
ditions, comfort,  convenience  and  business  facilities,  must  always 
depend  upon  the  provisions  of  adequate  local  transportation. 

AVhat  all  communities  require  is  the  co-ordination  into  a  single 
system  of  all  means  of  transportation,  each  to  perform  that  part 
of  the  service  for  which  each  is  the  best  suited.  Rapid  transit  in 
subways  or  on  elevated  structures,  surface  transportation  on  tracks 


M. 


Sekvice  At  Cost  Agreements 


or  on  rubber  tires,  are  facilities  which  can  best  serve  in  co-opera- 
tion, and  not  in  competition,  with  each  other.  To  properly  serve 
communities,  all  of  these  means  of  transportation  should  be  directed 
and  controlled  by  a  central  agency,  which  has  in  mind,  not  the 
promotion  of  the  interests  of  any  one  of  them,  but  the  furnishing 
of  the  best  means  of  intercommunication  to  the  community  as  a 
whole. 

In  a  growing  city  there  is  no  such  thing  as  a  completed  local 
transportation  system.  As  the  city  grows  so  must  its  transportation 
system  grow.  The  capital  requirements  for  new  construction  for 
the  electric  railways  of  the  United  States  indicate  this  continuing 
growth  in  a  normal  period.  They  are  well  over  $200,000,000  a 
year.  This  is  about  $5  for  each  man,  woman  and  child  classi- 
fied by  the  Census  Bureau  as  a  unit  of  the  urban  population.  For 
a  group  of  30  utilities,  25  of  which  were  electric  railways,  the 
expenditures  for  new  construction  for  the  pre-war  period  1902  to 
1913,  as  reported  to  the  Federal  Electric  Railways  Commission  by 
Mr.  Henry  G.  Bradlee  of  Stone  and  Webster,  were  $37  for  each 
$100  of  gross  revenue.  Between  1900  and  1910  the  urban  popula- 
tion of  the  United  States  increased  more  than  38  per  cent.  In 
some  way,  the  local  transportation  needs  of  these  additional  city 
dwellers  must  be  taken  care  of. 

The  Beal  Electric  Eailway  Problem. —  It  is  this  expansion  of 
local  transportation  facilities  to  meet  urban  requirements  that 
constitute  the  real  electric  railway  problem  as  it  affects  the  com- 
munities. Unless,  and  this  involves  a  reversal  of  present  tendencies 
little  likely  to  occur,  the  growth  of  cities  is  halted,  and  population 
drifts  to  the  country,  the  future  social  and  business  habits,  mode 
of  life,  and  to  a  certain  extent  the  morals  of  the  people  of  the 
United  States,  de[)end  upon  the  manner  in  which  local  transporta- 
tion facilities  meet  local  transportation  needs. 

It  is  the  business  of  communities  to  provide  for  their  inhabit- 
ants the  best  possible  living  conditions,  the  greatest  degiee  of 
comfort  and  the  largest  extent  of  convenience,  both  for  the  trans- 
action of  their  business  and  for  the  conduct  of  their  private  lives. 
Neither  health,  comfort  or  convenience  is  compatible  with  con- 
gestion, and  congestion  can  be  prevented  only  if  adequate  local 
transportation  be  provided. 


Service  At  Cost  Agreements  7 

Today,  only  the  cities  of  ITew  York,  Chicago,  Boston  and,  to  a 
very  limited  extent,  Philadelphia,  have  any  system  of  rapid  transit. 
There  is  need  for  such  a  system  in  many  other  cities  and  as  urban 
population  increases  this  need  will  increase.  Today,  few,  if  any, 
cities  have  entirely  adequate  systems  of  surface  transportation  and 
these  conditions,  both  as  to  rapid  transit  and  as  to  surface  trans- 
portation, have  been  greatly  aggravated  by  the  practically  total 
cessation  of  new  construction  during  and  after  the  war.  In  almost 
every  community  there  is  a  present  insistent  demand  for  an  ex- 
tensive construction  and  rehabilitation  and  for  improvement  in 
the  facilities  with  which  the  personal  service  is  being  furnished. 
Irrespective  of  whether  it  be  provided  by  means  of  electrically 
propelled  vehicles  or  by  motor  buses,  every  urban  community 
requires  a  transportation  system  which  will: — 

First,  expand  and  develop  so  as  to  permit  the  growth  and 
development  of  the  City  along  lines  that  will  eliminate  and 
prevent  congestion,  allow  living  conditions  conducive  to  health, 
sanitation  and  comfort,  prevent  inflated  real  estate  values, 
and  afford  the  maximum  of  convenience  in  the  transaction  of 
business. 

Second,  furnish  safe,  adequate  and  convenient  service, 
based  in  the  first  instances  on  consideration  of  social  needs, 
and, 

Third,  operate  at  as  low  a  cost  as  is  consistent  with  the 
service  furnished. 


Such  a  system  may  be  secured  in  two  ways.  First,  through  its 
provision  directly  by  the  community,  and  second,  through  its  pro- 
vision for  the  community  by  private  enterprise.  It  is  with  this 
latter  method  that  we  are  concerned.  The  question  of  public  o^vn- 
ership  and  operation  of  utilities  is  a  question  of  policy  involving 
considerations  which  need  not  be  here  discussed.  There  is  no 
likelihood  of  its  immediate  adoption  by  any  considerable  number  of 
communities.  There  is,  however,  present  and  pressing  need  for  the 
improvement  of  local  transportation  facilities,  which  must  be 
accomplished  through  public  use  of  private  enterprise, 


o 


Seevice  At  Cost  Agebements 


II 


What  is  Required  of  Private  Enterprise What  the  communi- 
ties require  has  been  aptly  summarized  as  "  the  best  possible  serv- 
ice at  the  lowest  possible  cost."  If  this  is  to  be  furnished  by  private 
enterprise,  then  the  demand  of  the  public  upon  such  private  enter- 
prise is  for 

First  —  Capital,  and, 
Second  —  Management. 

Fnder  what  conditions  can  these  two  essentials  be  best  obtained  ? 
That  is  the  question  that  most  directly  concerns  the  communities, 
and  until  it  be  answered  no  conception  of  a  correct  and  equitable 
basis  of  relationship  between  the  communities  and  private  enter- 
prise working  in  their  behalf  can  be  secured.  As  between  the 
interests  of  the  public  and  of  private  enterprise,  there  can  in  the 
long  nm  be  neither  divergence  nor  conflict,  since,  in  spite  of  legal 
protection,  there  can  be  no  successful  conduct  of  an  enterprise 
furnishing  a  public  service,  'using  the  public  streets,  and  dependent 
in  almost  every  detail  of  its  operation  upon  public  consent  and 
support,  without  public  co-operation.  The  public  interest  is 
undoubtedly  paramount  and  when  this  conflicts  with  private  enter- 
prise, experience  has  frequently  proved  that  it  is  the  latter  which 
must  give  way.  ^Nevertheless,  it  will  be  fouud  upon  examination 
that  full  prot^tion  to  private  enterprise  is  one  of  the  fundamentals 
which  must  underlie  any  agreement  or  arrangement  by  which 
private  enterprise  is  enrolled  in  the  public  service  upon  terms 
most  advantageous  to  the  public  itself. 

It  is,  therefore,  proposed  to  discuss  in  the  following  pages  the 
conditions  which  should  properly  control,  in  contracts  providing 
for  public  use  — 

(a)  Private  Capital 

(b)  Private  Management. 


CAPITAL 


CHAPTER  TWO 

PubHc  Utility  Capital 

Normal  Capital  Requirements  of  Local  Transportation  Enterprises  — 
Present  Time  Requirements  —  From  Whence  to  be  Obtained  —  Functions  of 
Investment  Bankers,  Holding  and  Management  Corporations  —  The  Ultimate 
Investor  —  Conditions  Under  Which  He  Will  Loan  His  Capital. 

Capital,  as  the  word  is  used  in  connection  with  public  utility 
enterprises,  consists  of  the  money,  or  its  equivalent,  invested  to 
create  the  entei-prise,  and  of  the  money,  or  its  equivalent,  invested 
to  expand,  extend  and  improve  it.  It  constitutes  the  money,  or 
value,  which  is  entitled  to  a  return.* 

A  local  transportation  utility,  prescribed  as  to  its  rate  of  return 
and  so  deprived  of  the  power  to  accumulate  capital  from  earnings, 
has  but  one  source  from  which  it  may  derive  capital,  i.e.,  the 
investor. 

The  capital  required  to  inaugurate  a  transportation  utility  in 
the  case  of  such  utilities  as  serve  gi-owing  communities  is  but  the 
beginning  of  a  continuing  and  continuous  demand  for  new  invest- 
ment. Extensions,  betterments  and  permanent  improvements,  all 
require  expenditure  of  money,  which,  because  no  surplus  over  and 
above  what  has  been  decided  to  be  a  fair  return  is  permitted,  must 
be  new  capital.  The  extent  of  the  demand  for  new  capital  has 
already  been  referred  to.  It  is  again  shown  by  statistics  of  certain 
properties,  whose  security  issues  are  and  have  been  for  the  period 
covered,  imder  strict  regulation,  so  that  all  question  of  improper 
accounting  or  improper  expenditure  is  removed.  Thus  in  1890, 
the  capital  liabilities  of  the  48  electric  railways  then  operat- 
ing in  Massachusetts  were  $25,011,989,  in  1915  they  were,  for 
53  companies,  $221,543,802,  an  increase  of  $195,931,813,  or  765 
per  cent,  which  is  an  average  for  the  25  years  of  $7,837,172 
a  year.  This  shows  an  increase  in  capital  investment  from  15.5 
cents  per  passenger  carried  to  29.1  cents  per  passenger  carried, 
or  nearly  100  per  cent.    It  does  not  include  the  very  considerable 

[9] 


10 


Service  At  Cost  Ageeements 


Service  At  Cost  AoREEME'iyTS 


11 


•I 


I 


\ 


investment  by  the  city  of  Boston  in  subways.  (Statistics  hosed  on 
the  report  of  the  Street  Railway  Investigation  Commission,  created 
hy  the  Massachusetts  Legislature  1917.    Pages  145  tmd  166). 

In  1907  the  construction  and  equipment  account  of  the  railways 
reporting  to  the  New  York  State  Public  Service  Commission  of 
the  Second  IKstrict  showed  as  of  June  30,  1907,  a  balance  of 
$179,262,445.  On  I>ecember  31,  1918,  the  balance  stood  at 
$240,690,179,  an  increase  of  $61,427,734,  or  32  plus  per  cent, 
making  a  yearly  average  of  $6,466,076.  (Statistics  based  on 
reports  of  New  York  Public  Service  Commission^  Second  District, 
1907  and  1918.) 

As  an  example  of  the  new  money  required  by  a  single  company 
the  figures  for  the  Cleveland  Railway  Co.  are  available.  The 
Capital  Account  of  this  company  has  been  under  the  supervision 
of  the  city  of  Cleveland,  since  the  company  began  operation  under 
the  Taylor  gi-ant  in  1910.  As  of  December  31,  1910,  it  stood  at 
$21,638,100;  on  December  31,  1918,  it  was  $34,211,400,  an  in- 
crease of  $12,573,300,  or  58  plus  per  cent,  being  an  average  of 
$1,571,662  a  year.  (Statistics  based  on  wnnuod  report  of  the 
Cleveland  Railway  Co,  1918.) 

For  the  United  States,  figures  compiled  by  the  United  States 
Bureau  of  the  Census  show  that  between  1902  and  1907  the  net 
capitalization  (i,e.,  capital  stock  and  funded  debt,  minus  duplica- 
tion and  stocks  and  bonds  of  companies  conducting  other  business) 
of  the  electric  railways  of  the  country  increased  at  the  rate  of 
$256,498,000  a  year.  Between  1907  and  1912  it  increased  at  the 
rate  of  $168,700,000  and  between  1912  and  li917  at  the  rate  of 
$129,400,000. 

The  figures  for  'Massachusetts,  New  York,  Wisconsin,  Cleve- 
land or  the  United  States  do  not,  however,  accurately  reflect  the 
present  capital  needs  of  the  local  transportation  utilities.  For 
some  time  before  and  during  the  war,  they  show  the  amount  of  new 
capital  that  it  has  been  possible  to  obtain,  rather  than  new  capital 
actually  needed,  and  the  falling  oflf  in  capital  additions  indicate 
the  reason  for  the  failure  of  the  railways  t»  provide  the  service 
demanded  by  the  public.  Adequate  service  is  limited  by  the  pro- 
vision of  the  facilities  through  which  it  is  rendered,  and  these  can 
be  provided  only  through  the  expenditure  of  new  capital. 


The  three  reasons  why  such  facilities  have  not  been  furnished 
during  latter  years  are : 

First,  the  reluctance  of  investors  to  provide  capital. 
Second,  the  limitations  put  upon  capital  expenditures  of  all 
kinds,  by  the  Government,  as  a  war  measure,  and. 

Third,  the  reluctance  of  the  managements  to  undertake  any 
but  absolutely  necessary  extensions,  betterment  and  improve- 
ments during  the  era  of  high  prices  that  has  for  some  time 
obtained. 

In  consequence,  there  is  now  an  accumulation  of  necessary  major 
expenditures,  which  will  for  some  years  to  come  increase  the  capi- 
tal requirements  of  electric  railways  far  above  the  normal.  If 
this  normal  be  estimated  at  $200,000,000  a  year  for  the  country, 
it  is  not  too  much  to  say  that  for  the  next  five  or  ten  years  it  will 
be  at  least  $300,000,000  a  year. 

From  what  source  is  this  capital  to  come?  It  is  evident  that 
there  is  but  one  ultimate  source  —  the  savings  of  the  people,  the 
margin  between  their  earnings  and  their  expenditures. 

"  Wall  Street,"  by  which  collective  term  there  is  expressed  to 
the  mind  of  the  average  man  or  woman  the  investing  i>ower  of 
the  nation,  is  not  an  ultimate  source  of  capital.  It  is  merely  a 
part  of  the  machinery  by  which  money  is  collected  for  investment, 
and  through  which  it  is  distributed  among  the  various  enterprises 
which  seek  capital.  The  function  which  it  performs  is  that  of 
decreasing  the  cost,  effort  and  time  which  is  required  to  secure 
capital. 

In  connection  with  public  utilities,  the  term  covers  both  invest- 
ment bankers  and  so-called  "  holding  "  companies,  neither  of  which 
are  final  sources  of  investment.  The  investment  banker  buys 
securities  for  the  purpose  of  later  selling  them  to  the  ultimate 
investor.  The  holding  company  buys  securities  to  serve  as  a  basis 
for  its  own  securities  which  are  later  sold  to  the  ultimate  investor. 

The  distinction  is  obvious,  the  ultimate  investor  is  he  who  buvs 
securities  for  the  purpose  of  obtaining  the  return  thereon:  the 
investment  banker  and  the  holding  company  buys  securities  for 
the  profit  —  entirely  legitimate  —  derived  from  its  business  of 


12 


Service  At  Cost  AoREEMinras 


Service  At  Cost  Agreements 


IS 


f 
f 


selling  them  to  the  ultimate  investor,  and  in  the  end  the  holders 
of  the  securities  of  local  transportation  utilities,  or  of  the  securi- 
ties protected  by  such  investment  will  be  found  to  be  individuals, 
whose  thrift  and  industry  has  enabled  them  to  accumulate 'savings. 

In  illustration, —  49  companies  scattered  throughout  the  United 
States  reported  to  the  American  Electric  Eailway  Association, 
bonds  outstanding  to  the  par  value  of  $240,347,825,  in  the  hands 
of  448,775  holders,  or  an  average  par  value  for  each  individual 
of  $535.92 ;  98  companies  reported  stock  outstanding  amounting 
in  par  value  to  $440,867,745,  distributed  among  32,788  indi- 
viduals, an  average  of  $i;i.44(),  /jar  value,  per  individual ;  10 
companies,  four  in  Texas,  two  in  Michigan,  and  one  each  in  Minne- 
sota, Wisconsin,  Washington  and  Florida,  report  1,273,870  shares 
of  stock  outstanding  in  the  hands  of  23,952  holders,  of  whom 
11,324  were  men,  10,941  were  women  and  1,686  trustees  of 
fiduciary  institutions,  an  average  holding  of  53  shares  per  indi- 
vidual ;  the  life  in«urance  companies  of  the  United  States  hold 
eleetiic  lailway  securities  to  the  book  value  of  $116,592,670 
{Letter  of  Mr.  George  W,  Smith,  Actuary,  Association  of  Life 
Insurance  Presidents  July  16,  1919) ;  while  in  1915  of  a  total  of 
outstanding  bonds  of  Massachusetts  electric  railways  amounting 
to  $87,717,700,  $31,414,000  or  more  than  36  per  cent  were  held 
by  savings  banks  and  other  fiduciary  institutions. 

These  statistics  are  given  not  as  a  plea  for  these  investors,  but 
solely  to  show  that  if  local  transportation  securities  are  to  be  sold, 
neithtn*  the  investment  banker,  nor  the  holding  company,  have  it 
within  their  |)ower  to  stipulate  the  terms  and  conditions  upon 
which  the  sale  must  rest,  but  that  such  power  resides  in  the  ultimate 
investor  alone,  and  that  it  is  the  requirements  of  these  investors 
that  must  be  met  if  the  new  capital  needed  for  local  transporta- 
tion is  to  }ye  forthcoming. 

The  question  as  to  the  efficiency  or  economy  of  the  present 
system  of  disposing  of  utility  securities  through  banking  houses 
and  :j1)S( upturn  by  holding  companies  is  alien  to  the  present  dis- 
cussion, since,  insofar  as  the  teriiH  and  conditions  of  investment 
are  concerned,  these  but  act  as  agents  of  the  ultimate  investor, 
whose  demands  are  the  demands  that  must  be  satisfied,  before  he 
will  consent  to  loan  his  savings  for  the  public  service 


It  is  then  essential  to  determine  what  are  the  reasonable  and  nor- 
mal requirements  of  the  individual  whose  funds  are  sought,  the 
terms  and  conditions  upon  which  he  will  lend  his  capital,  and  it 
may  be  assumed  that  the  two  factors  which  will  at  all  times  and 
under  all  conditions  control,  are, 

First,  The  degree  of  safety,  that  is,  the  assurance  of  its 
return  undiminished  at  the  expiration  of  the  period  of  its 
public  use  and 

Second,  Rate,  and  a-ssurance  of  return ;  that  is,  the  amount 
which  it  shall  be  permitted  to  earn  during  its  period  of  public 
use,  and  the  degree  of  certainty  of  return. 

Third,  The  marketability  of  the  securities  offered. 

Conclusions 

Transportation  utilities  have  hui  one  source  of  capital  —  the 
investor, 

A  continuing  supply  of  new  capital  is  necessary  to  the  develop- 
ment of  local  transportation  systems  in  pace  with  comnnttnity 
requirements. 

The  terms  upon  which  new  capital  may  he  obtained  are  dictated 
by  the  investor  and  may  not  be  controlled  by  either  the  community 
or  the  utility. 

The  basic  conditions  upon  which  capital  may  he  obtained  are 
that  the  safety  of  the  investment  and  an  equitable  and  fair  rale 
of  return  be  assured. 


CHAPTER  THREE 
Risk  of  Supercession 

Risks  to  Which  Local  Transportation  Investment  is  Liable  —  Supercession 
—  How  It  Can  Be  Eliminated  —  The  Advantages  of  a  Transportation  "  Sys- 
tem "  Conducted  by  a  Single  Agency  Unrestricted  as  to  the  Character  of 
the  Vehicle  Used  — Motor  Transport  as  an  Auxiliary  to  Electric  Railways. 

Money  invested  in  local  transportation  is  in  danger  of  loss,  par- 
tial or  total,  from  three  causes : 

First,  The  method  of  transportation  which  it  is  used  to 
provide  may  be  superseded  by  some  more  efficient  or  econom- 
ical method  to  an  extent  which  will  greatly  decrease  the 

2 


14 


Service  At  Cost  AgreemfxYts 


value  of  the  physical  projjerty  of  the  enterprise  and  at  the 
same  time  render  its  right  to  conduct  l)usiness  valueless; 

Second,  The  right  of  the  enterprise  to  conduct  business  and 
to  the  use  of  the  city  streets  for  such  purpose  may  be  with- 
drawn, without  compensation  for  the  loss  sustained; 

Third,  The  physical  property  which  it  provides  may 
become  worn  out  or  obsolete,  in  the  public  service,  without 
provision  for  its  replacement  having  been  made  from  revenue. 

The  first  of  these  risks  is  equally  liable  to  occur  in  the  case  of 
public  ownership  and  operation.  It  is  not  assumed  by  communities 
which  issue  in  payment  for  utilities  purchased  or  cMistructed  so- 
ealled  "  public  utility  "  bonds  secured  only  by  a  lien  upon  the 
property  and  earnings,  and  it  can  only  be  entirely  assumed  by  the 
public  through  the  pledging  of  the  public  credit,  either  directly  in 
the  case  of  money  raised  through  issues  of  community  bonds,  or 
indirectly,  in  the  case  of  public  guarantee  of  securities.  It  may  be 
mitigated  through  the  amortization  of  the  investment,  or  through 
a  grant  to  the  utility  of  exclusive  right  to  provide,  local  trans- 
portation by  any  and  all  methods. 

It  is  more  than  a  mere  theoretical  risk.  The  development  of 
the  motor  bus,  while  it  is  extremely  unlikely  to  furnish  a  substi- 
tute for  a  "  system  "  of  electric  railways,  has  at  least  shown  that 
under  certain  conditions  and  in  certain  localities  service  can  be 
provided  by  other  means  than  electrically  propelled  cars  on  rails. 
The  unrestricted  and  unregulated  use  of  such  vehicles  does,  in 
point  of  fact,  at  the  present  time,  threaten  the  safety  of  electric 
railway  investment  in  many  instances.  It  is  not  to  be  believed 
that  the  improvement  and  evolution  of  the  motor  vehicle  can  be 
arbitrarily  prevented  or  to  any  extent  hamjiered.  If  it  can  be 
made  more  efficient  and  more  economical  than  the  electric  car,  then 
it  will  undoubtedly  supersede  that  means  of  transportation,  as 
the  cable  car  superseded  the  horse  car  and  was  in  turn  superseded 
by  the  electric  car.  Similarly,  any  other  method  of  transporta- 
tion, if  better  than  electric  railway  transportation,  will  in  the  end 
succeed  it. 

From  this  risk  investment  can  be  protected  only  if  the  right 
of  the  enterprise  to  conduct  business,  be  an  exclusive  right  to 


Service  At  Cost  Ageeemexts 


15 


furnish  a  transportation  system,  by  whatever  means  and  methods 
iire  the  cheapest  and  most  efficient  and  if  it  be  permitted  to 
amortize  from  earnings  such  losses  as  may  arise  from  supercession. 

The  development  of  any  new  means  of  transportation,  under 
competition,  will  in  the  end  prove  more  costly  than  will  its  develop- 
ment as  a  part  of  or  in  conjunction  with  the  existing  transporta- 
tion system.  Competition  as  a  means  of  regulating  public  utility 
charges  and  service  has  been  discarded  by  the  public  as  expensive, 
temporary,  inconvenient  and  an  ultimate  deterrent  of  both  good 
service  and  low  charges.  Yet  today  in  the  case  of  motor  transport, 
competition  is  being  encouraged  and  is  resulting  in  the  decreased 
efficiency  of  transportation  systems,  whatever  its  effect  may  be 
in  respect  of  certain  parts  or  phases  of  such  system. 

Thus,  while  the  operation  of  motor  buses  in  districts  already 
ser\t^d  by  street  cars  may  add  to  the  facilities  furnished  to  those 
particular  sections  of  the  communities,  it  deprives  the  street  car 
lines  of  earnings  and  so  lessens  the  system's  ability  to  furnish 
service  in  other  parts  of  the  community,  where  because  of  lesser 
density  of  traffic  or  for  other  reasons  motor  buses  will  not  operata 

It  cannot  be  too  strongly  emphasized  that  the  most  pressing 
need  of  comnumities  is  for  a  complete  system  of  local  transporta- 
tion, and  not  for  excess  of  service  in  particular  localities.  The 
development  of  some  particular  unit  of  transportation  does  not 
mean  the  development  of  a  local  transportation  system.  All 
methods  of  transportation  may  have  their  proper  place  in  such  a 
system  but  the  interests  of  the  communities  require  that  they  be 
co-ordinated  in  such  a  manner  that  each  shall  perform  the  task 
which  it  is  best  equipped  to  perform,  and  that  none  shall  be  devel- 
oopcd  at  the  expense  of  the  complete  system. 

In  Great  Britain  this  principle  has  been  recognized  and  made 
effective.  Mr.  Walter  Jackson  in  an  article  in  the  Electric  Rail- 
way  Journal  of  February  28,  1920,  states  that  motor  buses  are 
being  operated,  in  connection  with  tramways,  as  part  of  the  same 
system  among  other  places,  in  cities  of  Birmingham,  Liverpool, 
Manchester,  Sheffield,  Leeds,  Edinburgh,  Barrow,  Barnsley,  Peter- 
borough, Stoke-on-Trent,  Greenock,  Sheerness,  East,  Wrexham, 
Beading  and  Swansea,  while  application  for  permission  to  operate 


16 


Service  At  Cost  Ar.REEAfENTS 


buses  in  connection  with  tramways  has  been  made  for  Blackpool, 
Cardiff,  Erith,  Coventry,  Huddersfield,  Lowestaft,  Newcastle-on 
Tyiie,  Nottingham,  Salford  and  Southampton.  In  the  United 
States,  there  are  isolated  instances  where  motor  buses  are  oper- 
ated by  the  same  interests  (but  not  by  the  same  companies)  as 
those  which  operate  the  electric  railway  service,  but  there  is 
nowhere  a  rec(^ition  of  the  principle,  that  if  both  means  of 
transportation  are  to  be  employed,  they  should  be  under  a  single 
management,  first  and  foremost  for  the  purpose  of  providing  a 
complete  system,  and,  second,  in  order  that  the  investment  in  the 
original  enterprise  may  be  protected. 

If,  theft,  privately  operated  public  utility  enterprises  be  granted 
the  right  to  provide  a  complete  and  exclusive  local  transportation 
system  for  the  community,  not  only  will  the  communities  be 
better  and  more  efficiently  served,  but  the  risk  of  supercedence 
Iwrne  by  the  investment  will  be  reduced. 

The  grant  under  which  private  enterprise  is  permitted  to  fur- 
nish local  transportation  service  should  be  both  inclusive  anrl 
exclusive,  and  should  cover  a  transportation  system  and  not 
merely  a  particular  method  of  transportation. 

Conclusions 

Money  invested  in  local  transportation  is  in  danger  of  total  or 
partial  loss  if  the  means  of  transportation  it  is  used  to  provide 
he  superceded  by  some  other  more  convenient  or  economical  form. 

This  risk  can  be  obviated  only  if  the  enterprise  he  given  the 
exclusive  right  to  provide  a  transportation  system,  by  whatever 
means  are  the  best  and  cheapest  and  is  permitted  to  amortize  from 
earnings  losses  occasioned  by  supercession. 

It  is  in  the  interest  of  the  communities  and  the  public  that  the 
provision  of  a  local  transportation  system  embracing  all  means 
of  transportation  be  confided  to  one  agent. 


CHAPTER  FOUR 
Bisk  of  Termination 

Risks  to  Wliich  Local  Transportation  Investment  Is  Liable —  Termination 
of  Right  to  Conduct  Business  Without  Provision  for  Recovery  of  Invest- 
ment —  Franchises  as  a  Protection  to  Investment  —  Effect  of  Term,  or  Period 
—  Necessity  of  Amortization  when  Period  Is  Short  —  Importance  of  Credit  — 
Protection  of  Public  Interest  with  Long  Term  Franchises  —  The  Indetermi- 
nate Permit  Considered. 

The  second  of  the  risks  to  which  capital  invested  in  electric 
railways  is  liable  is  that  its  right  to  conduct  its  business  may  be 
terminated  without  provision  being  made  against  the  loss  that 
nilist  always  be  present  when  a  going  concern  is  converted  into 
a  mere  aggregation  of  physical  assets  —  the  difference  between 
a  "  business  "  capable  of  earning  a  return  and  the  scrap  value 
of  the  physical  property  with  which  the  business  was  conducted. 

The  foundation  of  the  local  transportation  company's  credit  is 
the  expression  of  legal  right,  franchise,  grant  or  agreement  by 
which  it  maintains  tracks  in  the  public  streets  and  operates  cars 
thereon. 

Money  is  obtained  for  these  companies,  not  so  much  on  the 
strength  of  their  physical  assets,  as  upon  their  ability  to  earn  a 
return.  Tracks,  cars,  power  houses,  wire  and  other  apparatus 
have  a  certain  value  as  "  scrap,"  but  this  "  scrap  value  "  in  no 
case  equals  the  "  value  ''  of  the  property  which,  for  the  investor, 
must  be  based  upon  the  utility's  earning  power. 

The  risk  of  having  the  "  value  "  of  the  property  converted  from 
that  inherent  in  a  living  business  enterprise,  to  the  "value"  of 
commodities  like  rails,  ties,  concrete,  cars,  wire,  power  houses^ 
etc.,  etc.,  is  controlled  by  the  period  or  terms  of  its  grant. 

L(»cal  transportation  franchises  are,  as  to  period,  of  three  gen- 
eral classes,  perpetual,  term,  and  indeterminate. 

There  is  little  use  to  discuss  the  perpetual  franchise.  There  is 
no  likelihood  of  any  community  making  such  a  grant  in  connec- 
tion with  service-at-cost  and  there  is,  perhaps  even  less  likelihood 
m  view  of  recent  experience,  of  any  traction  company  accepting 

117 


18 


Sebvice  At  Cost  Ageeemfats 


Seevice  At  Cost  Ageeemejsts 


19 


I 


swell  a  franchise  with  the  limitations  as  to  fares  and  the  require- 
ments for  service  extending  indefinitely,  such  as  it  would  inevi- 
tably contain.  In  the  present  period  of  readjustment,  the  out- 
standing requirement  of  any  plan  for  regulating  the  relations 
between  local  transportation  companies  and  the  cities  is  flexibility. 
The  rigidity  that  must  necessarily  be  present  in  any  grant  in  per- 
petuity, if  the  interests  of  either  the  communities  or  the  investors 
are  to  be  protected,  would  operate  to  prevent  the  evolution  of 
the  transportation  system  in  the  way  which  will  best  serve  both 
parties. 

An  examination  of  131  franchises  held  by  companies,  in  all 
States  of  the  Union  except  12,  and  in  Canada  and  the  District  of 
Columbia,  shows  the  wide  divergence  in  the  terms  of  such  grants. 
Thus,  of  the  121,  27  are  in  perpetuity,  one  is  for  100  years,  two 
for  99  years,  31  for  50  years,  four  for  35  years,  two  for  34  years, 
nine  for  30  years,  26  for  25  years,  eight  for  20  years,  while  nine 
were  indeterminate  as  to  period. 

For  all  but  38  of  these  121  companies,  there  then  exists  a  risk 
that   "value"  may  be  reduced  from  the  value  attached  to  a 
"  going  "  concern  to  the  "  value  "  attached  to  its  physical  prof,- 
erty  mly.     This  risk  exists  in  all  "  term  "  franchises,  and  its 
degree  is  marked  by  the  length  of  the  term.     It  can  he  eliminated 
in  "  term  "  franchises,  only  if  during  the  life  of  the  franchises, 
there  be  taken  from  the  fares  paid  by  the  car  riders  to  the  com- 
pany such  an  amount  of  cash  as  will  equal  the  diffei-ence  tlu* 
value  of  the  company  as  a  "  going  "  enterprise  and  the  "  scrap 
value  "  of  its  physical  property.     This  process  must  necessarily 
include  not  only  the  amortization  of  the  difference  as  it  affects 
the  property  existing  on  the  date  when  the  franchise  became 
effective,  but  every  addition  to  the  property  subsequently  made. 
The    impractieability    of    any    such    proc^css    is    obvious.      For 
instance,  in  the  case  of  a  20-year  franchise,  the  difference  as  it 
affected  the  original  investment  (i.  e.,  the  investment  at  the  time 
the  franchise   took   effect)    would    presumably   be   amortized    in 
20   installments  and   later   investments  would   \ye  amortized    in 
installments  equal  to  the  numW  of  years  remaining  to  the  fran- 
chise, so  that  toward  the  end  of  the  life  of  the  franchise  the  amount 


to  be  paid  annually  would  be  so  great  as  to  impose  an  impossible 
burden  upon  the  car  rider. 

There  is,  however,  no  good  reason  why,  if  vahie  is  at  all  times 
kept  behind  investment,  the  car  rider  should  be  called  upon  to 
bear  any  amortization  charge  of  this  character.  The  sole  argu- 
ment, therefore,  is  that  by  such  amortization  the  investment  upon 
which  return  must  be  paid  is  reduced.  The  reduction,  however, 
is  at  the  expense  of  the  car  rider,  and  means  if  cheaper  fares 
actually  result,  that  the  car  rider  of  the  present  is  assuming  a 
part  of  the  cost  of  the  rides  to  be  given  to  the  car  rider  of  the 
future.  Equity  demands  that  the  present  rider  should  assume 
and  pay  for  every  cost  of  the  service  furnished  him,  and  this  cost 
includes  property  worn  out  or  rendered  obsolescent  in  the  service, 
thus  keeping  property  value  in  step  with  capital  value  as  that 
represents  the  amount  upon  which  return  is  paid.  It  does  not, 
however,  require  that  he  should  assume  any  expense,  the  purpose 
of  which  is  to  enable  service  to  be  given  to  future  car  riders  at 
lower  rates.  Amortization  of  investment  in  this  form  is,  there- 
fore, simply  a  shifting  of  costs  from  one  set  of  car  riders  to 
another  and  only  to  the  extent  that  such  amortization  charges  can 
be  equitably  distributed  over  the  years,  so  that  no  one  set  of  riders 
shall  be  subject  to  unjust  burden,  may  the  practice  be  defended. 

Amortization  of  investment  for  the  purpose  of  purchase  involves 
another  principle,  which  is  unrelated  to  the  question  here  dis- 
cussed and  affects  more  particularly  the  method  by  whicb  public 
utilities  should  be  acquired. 

The  point  here  raised  is  that  the  risk  of  loss  to  investors 
through  the  termination  of  tenn  franchises  can  be  obviated  onlv 
through  amortization  of  part  of  the  investment.  This  principle 
was  recognized  in  the  earliest  of  the  so-called  service-at-cost  fran- 
chises, that  in  Cleveland.  Under  the  laws  of  Ohio,  no  franchise 
can  l»e  granted  for  a  longer  period  than  25  years,  and  in  order  to 
protect  the  company  from  the  risk  of  loss  occasioned  by  termi- 
nation, the  grant  provides,  when  it  has  less  than  15  years  to  nm, 
that  the  company  may  charge  the  highest  rate  of  fare  provided, 
that  control  of  schedules  shall  pass  from  the  city  to  the  company 
and  that  the  surplus  in  excess  of  the  cost  of  service  shall  be  used 
for  the  purpose  of  amortizing  the  investment.     The  principle 


20' 


Sekvice  At  (>)st  AGEEEMiris^rs 


Service  At  Cost  Agbeemeats 


» 


tl 


embodied  in  this  provision  is  still  more  clearly  set  forth  in  the 
Youngstown  franchise,  which,  like  the  Cleveland  franchise,  pro- 
vides for  only  a  25-year  term.  When  this  grant  has  less  than 
1 5  years  to  ran,  it  is  provided  that  the  company  may  charge  such 
a  rate  of  fare  as  will  provide  a  fund  which,  with  interest  com- 
pounded at  7  per  cent.,  will  amortize  the  difference  between 
Capital  Value  and  Salvage  Value  as  they  may  stand  at  the  termi- 
nation of  the  franchise.  The  Westerville  franchise  has  a  pro- 
vision similar  to  that  of  Cleveland. 

With  "term"  franchises,  whether  they  be  short  or  long,  the 
credit  of  companies  can  be  firmly  established  only  if  provision 
for  amortization  is  made,  since  without  such  provision,  there 
must  necessarily  come  a  time,  whether  it  be  10,  or  whether  it 
be  90,  years  from  the  date  when  the  agreement  was  entered  into, 
when  the  risk  of  loss  through  termination  becomes  so  imminent 
as  to  demoralize  the  entire  financial  structure  of  the  enterprise. 

Moreover,  provisions  like  those  in  the  Cleveland  and  the  Youngs 
town  grants,  while  they  serve  to  protect  investment  already  made, 
are  insufficient  to  induce  new  investment  during  the  later  years 
of  the  franchise  period,  since  amortization  would  in  all  prob- 
ability necessitate  a  higher  fare  than  could  be  profitably  collected. 
It  is  sought  in  the  franchises  under  discussion  to  miminize  this 
objection  by  providing  for  early  renewals,  and  by  the  agreement 
that  in  the  event  of  such  renewals,  the  amortization  shall  cease. 
Such  provisions  are  in  reality  admissions  of  the  undesirability 
of  short  term  and  have  the  tendency  to  keep  the  relations  of  the 
community  and  the.  company  in  ,a  more  or  less  constant  state  of 
turmoil.     For  the  period  of  franchise  negotiations  is  in  every 
case  an  unprofitable  one,  both  for  the  municipalities  and  the  com- 
panies.    During  its  continuance  and  until  a  basis  of  relations 
have  been  re-established,  extensions  and  betterments  cease,  service 
almost  invariably  deteriorates,  hostility  is  engendered,  co-operation 
between  public  and  company  which  is  the  basis  of  good  service 
suffers,  and  a  question  which  should  be  answered  from  considera- 
tions of  good  business  sense  alone  becomes  a  political  question. 

The  limitation  of  the  term  of  franchise  grants  to  be  found 
in  the  constitutional  or  statute  law  of  many  States  express,  first, 


a  reaction  from  the  practice  of  granting  franchises  in  j)erpetuity 
ami,  second,  tho  desire  to  pro:\nde  a  greater  degree  of  control  over 
t!:c  jjiiblic  utilities  than  had  before  existed.     Most  of  the  limiting 
I »i() visions  were  incorporated  in  the  law  during  a  period  when  such 
.  c'gulation  of  the  utilities  as  existed  was  by  virtue  of  franchise  pro- 
viLions.     These  provisions  attempted  to  govern  in  detail  question 
(•r  both  ratos  and  sen-ice  much  in  the  manner  of  the  plans  and  spec- 
ilications  accompanying  a  contract  for  the  consti-uction  of  a  build- 
ing.    Obviously  no  one  had  the  wisdom  or  knowledge  to  draft  an 
instrument  in  which  would  properly  accomplish  this  purpose  over 
any  considerable  time.     Moreover,  the  popular  conception  of  a 
fianchise  pictured  it  not  as  a  mere  authorization  to  perform  a 
pnblic  service  in  the  public  interest,  but  a  grant  having  a  substan- 
tial  value  because  it  pennitted  the  collection  of  an  unlimited 
amount  of  retuni  from  the  jmblic,  so  long  as  its  provisions  as  to  rate 
of  fare  and  conditions  of  service  were  complied  with.      Under 
t'irs(>  conditions,  it  is  not  surprising  that  it  was  considered  essen- 
tial to  the  public  interest  that  the  franchise  should  be  limited  to  a 
short  term  in  order  that  these  terms  could  be  frequently  remolded 
!o  meet  changing  conditions. 

These  reasons  for  term  franchises  no  longer  exist.  The  regiila- 
t  on  of  public  utilities  is  no  longer  a  question  of  the  provisions  of 
i'i(^  grant  under  which  they  are  allowed  to  do  business.  The 
machinery  of  regulation  has  l>een  extended  and  expanded.  By 
Tmiting  the  return  allowed,  tlie  ''  value  ''  of  the  franchise,  insofar 
as  it  depends  upon  the  permission  given  to  collect  profits  from  the 
jiiblic,  has  been  eliminated.  Through  the  control  of  service  and 
•  '  fares,  by  either  State  or  municipal  government,  the  necessity  of 
i  (  quentlv  revamping  franchise  provisions  to  meet  new  conditions 
1ms  Ix^en  obviated,  and  the  franchise  grant  has  been  recognized  for 
^  hat  it  now  really  is:  namely,  a  peimit  to  conduct  a  public  sen-ice 
P  imarily  and  controllingly  in  the  public  interest,  and  but  second- 
«^iily  in  the  interest  of  those  who  furnish  the  capital  for  the 
citorprise. 

1  nder  this  concept,  the  nuijor  interest  of  the  public  in  the  term 
"»■  period  is  that  it  may  be  terminated,  not  at  stated  lengthy  inter- 
vals, but  whenever  the  public  interest  requires  its  termination,  and 
smce  it  is  inconceivable  that  the  modem  community  can  at  any 


«" 


1 


oo 


Service  At  Cost  AgreemexVTS 


Service  At  (.*ost  Aoeeemknts 


time  do  without  a  l(x-al  transiM>rtati»>u  .system,  the  public  interest 
will  rcNpiire  terniiiiatioii  of  the  franchise,  only  in  the  event  that  the 
comnuinily  desires  to  purchase  and  operate  the  system,  or  that  it 
desires  that  some  other  than  the  incumbent  interests  own  and 

o|Kn'ate  it. 

This  is  the  princi|>le  of  the  Indetenninate  Permit,  which  is 
for  no  stated  t<uiu  and  which  is  revocable  at  any  time  that  the 
comnniiiity  may  elect  to  purchase,  or  to  i)ermit  its  licensee  to 
purchast*,  the  propei-ty  under  terms  which  the  grant  itself  pro- 
vides. The  benetits  of  the  Indeterminate  Permit  may  thus  be 
summed  up: 

Fit\sL  It  gives  the  community  full  power  to  remove  a  de- 
li n<iucnt  or  objectionable  company  from  the  operation  of  its 
street  railway  svstem,  in  the  oidv  two  ways  which  guard 
against  an  intcn-ruption  of  the  service; 

Srrmid,  By  removing  the  risk  to  the  company  of  loss  occa- 
sioned by  termination  of  its  right  to  do  business,  it  safeguards 
the  company's  cnnlit,  the  preservation  of  which  is  essential  if 
needcHl  extensions  and  improvemints  are  to  be  provided; 

Third,  Tt  eliminates  that  twilight  zone  in  the  life  of  fran- 
chises, which  mark  the  period  of  negotiations  for  renewal, 
during  which  service  deteriorates,  extensions  and  betterments 
cease,  and  animositieMS  are  aroused. 

Fourth,  By  providing  a  simple  and  easy  method  of  public 
purchase,  it  puts  it  within  the  jxnver  of  communities  to  at  any 
time  own  and  ojK'rate  their  street  railway  systems  and  so 
does  away  with  one  prevalent  i>oint  of  controversy. 

Conclusions 

Capital  iHVfstrd  In  locd  tramiwrlaJion  is  liable  to  partidd  loss 
fhrouqh  the  {cnninniioii  of  iis  right  to  conduct  bimness,  ivithoui 
l,r,>visiuii  for  the  laifmcni  of  the  difference  between  tlie  value  of 
(he  enter  prise  <us  a  going  concern,  and  tlie  ''scrap"  value  of  its 
phtfsicaJ  propertg.  ** 

Thi,^  loKs  eau  Ije  guarded  against,  if  its  right  to  condmt  hminess 
he  termin^d}h'  onJg  fh rough  jnirrhasr  hy  the  community  or  a 
licensee  of  the  commanity  at  a  price  representing  the  value  of  the 


enterprise  as  a  going  concern,  or  if  provision  he  made,  for 
amortizing  during  the  life  of  its  grant,  the  difference  between  ifs 
value  as  a  going  concern  and  the  estimated  scrap  value  of  its  physi- 
cal property. 

Tlie  latter  protection  is  costly  to  both  the  community  and  the 
enterprise,  results  in  inferior  service  and  is  detrimenial  to  all 
interests.  The  former  sufficiently  safeguards  the  public  interest  by 
providing  means  for  ouMing  delinquent  companies,  vhile  insuring 
a  continuance  of  service. 


CHAPTER  FIVE 

Risk  of  Attrition 

Risks  to  Which  Loral  Transportation  Investment  is  Liable  —  Attrition  of 
IMiysical  Property  —  Must  be  Compensated  for  from  Revenue— An  Operatinjjf 
Cost  and  Not  a  Charge  Against  Profits  —  Cannot  be  Provided  For  Through 
Current  Maintenance  —  Necessity  for  Adequate  Reserves  —  Public's  Interest 
Protected  by  Such  Reserves  —  The  Position  of  the  Industry  upon  Deprecia- 
tion. 

The  attrition  of  the  physieal  pro|x^rty  of  an  electric  railway,  or, 
indeed,  of  any  other  pnblic  utility  is  a  continuing  process.  It  takes 
two  forms,  first,  the  actual  wearing  away  through  use,  the  action 
of  the  elements,  or  by  any  other  means  which  decreases  its  period 
of  useful  life,  and  second,  obsolescence,  because  of  service  units 
being  superceded  by  other  service  units  which  can  more  adequately 
fulfill  their  function. 

This  risk  of  attrition  is  the  third  risk  to  which  capital  invested 
in  electric  railways  is  subject  and  from  which  it  must  Ik?  pro- 
tected. Both  the  actual  wearing  away  of  the  property  and  its 
obsolescence  constitutes  a  proper  charge  against  the  cost  of  the 
service  rendered  and  must  be  made  good  from  the  revenues  col- 
lected on  account  of  such  service.  The  investor  is  entitled  to 
have  his  full  investment  returned  to  him  undiminished  at  the 
ex|)iration  of  the  period  of  public  use.  It  is,  therefore,  evident 
that  there  must  be  on  hand  at  all  times,  either  property  to  tlie 
full  value  of  the  investment,  or  funds  equal  to  the  difference 
br'tween  the  value  of  the  physical  property  and  the  full  value  of 
the  investment 


4> 


r 


See  VICE  At  Cost  Ageeemkjsts 


Service  At  Cost  Agreements 


1 


And  because  it  is  manifestly  impossible,  through  the  medium 
of  repairs,  renewals  and  replacements,  to  keep  any  property  up 
to  100  per  cent,  of  its  perfect  physiea-l  condition,  although  it  is 
possible  to  keep  it  up  to  100  per  cent,  of  its  perfect  operating 
condition  and  because  obsolesence  cannot  usually  in  the  case  of 
individual  physical  units,  b©  neutralized  by  gradual  replacement, 
but  requires  complete  substitution  at  uncalculatable  periods,  the 
nectssitv  of  accumulating  reser\"c  funds  which  will  maintain  the 
balance  between  investment  and  value  is  at  once  apparent. 

The  principle  is  easy  of  comprehension.  The  wear  and  tear 
and  obsolescence  of  physical  property  provided  by  the  funds  of 
the  investor,  takes  place  because  of  its  public  use.  It  is  a  lessen- 
ing of  the  investment  and  if  allow^ed  to  proceed  would  eventually 
wijx?  out  practically  all  of  the  physical  property  back  of  the  invest- 
ment. In  an  industry  unregulated  as  to  return  and  capable  of 
earning  sufficient  profit,  it  can  Ix)  taken  care  of  by  reserving  part 
of  accumulated  profits.  In  a  regulated  enterprise  such  as  a  local 
transportation  company,  when  the  return  is  in  the  last  analysis 
merely  interest  and  not  profit  in  the  sense  that  profit  is  regarded 
in  uncontrolled  industry,  there  is  no  margin  for  the  absorption 
of  this  attrition  of  propeity  out  of  excess  profits,  and  attrition 
must  consequently  be  considered  and  treated  as  an  operating 
expense  and  so  provided  for. 

It  is  a  charge  w^hich  has,  in  fact,  no  relation  to  profits.  It  is 
necessary  not  only  to  presei-ve  the  integi'ity  of  the  investment, 
but  to  as  well  insure  good  and  sufficient  service.  We  have 
referred  to  the  amortization  necessary  to  protect  the  enterprise 
against  loss  through  the  termination  of  the  right  to  do  business 
as  a  charge  assessed  against  the  present  car  rider  in  favor  of  the 
future  car  rider.  Failure  to  currently  provide  for  the  attrition 
of  the  property  is,  on  the  other  hand,  a  bill  drawn  against  future 
car  riders  for  the  benefit  of  present  car  riders. 

For  this  is  true:  That  if  there  be  in  a  single  year  wear  of  the 
property  to  the  extent  say  of  6  per  centum  of  its  value  and  such 
wear  is  made  good  only  to  the  extent  of  2  per  centum,  then  unless 
the  property  is  eventually  to  be  entirely  dissipated,  the  difference 
between  the  6  per  centum  loss  and  the  2  per  centum  replacement 
must  be  made  good  from  future  contributions  of  car  riders. 


Wear  cannot  be  made  entirely  good  by  current  repairs  and 
replacements.  Thus,  the  life  of  a  rail  may  be  20  years,  in  each 
of  which  a  certain  amount  of  wear  and  tear  takes  place.  Yet 
it  is  not  until  the  last  of  the  20  years  expires  that  actual 
replacement  is  made.  To  assess  the  entire  cost  of  this  replace- 
ment upon  the  car  rider  of  the  year  in  which  a  new  rail  is  sub- 
stituted for  the  old  rail  is  to  burden  him  with  a  charge  which  in 
equity  should  be  borne  equally  by  the  riders  of  the  other  nineteen 
years.  Or,  as  to  obsolescence  —  a  power  plant  by  reason  of 
impiovenients  in  the  design  of  power  generating  apparatus 
becomes  obsolete  and  must  be  replaced.  Unless  there  shall  have 
been  accumulated  during  the  period  of  use  of  the  old  plant,  a 
fund  which  represents  its  deterioration,  not  only  physical,  but 
functional  as  well,  the  entire  cost  of  replacement  is  borne  by  the 
cjir  rider  of  the  period  in  which  the  replacement  is  made. 

The  distribution  of  this  charge  for  property  attrition  as  between 
current,  repairs,  renewal  and  replacements,  and  contributions  to 
a-  resei-ve  fund,  constitutes  a  practical  engineering  problem  to 
be  determined  by  actual  experience  under  various  conditions.  It 
should  be  borne  in  mind,  however,  that  although  the  actual  opera- 
tion of  the  transportation  system  may  not  be  affected  to  an  appre- 
ciable extent  where  there  be  adequate  maintenance  without  a 
reserve  fund,  yet  both  the  integrity  of  the  property  and  the  inter- 
est of  the  car  rider  is  materially  affected,  since  in  the  first  instance 
there  cannot  possibly  be  on  hand  at  all  times  value  to  the  full 
extent  of  the  investment  and  in  the  second  instance  there  is  bound 
to  be  inequity  in  the  distribution  of  this  charge  as  between  past, 
present  and  future  users  of  the  service. 

No  attempt  is  being  made  to  here  discuss  the  intricate  details 
of  "  maintenance  "  and  "  depreciation."  What  is  being  consid- 
ered are  the  reasonable  requirements  of  the  investor  for  the  pro- 
tection of  his  investment  in  a  local  transportation  system  and  it 
is  evident  that  protection  is  not  afforded  if  the  value  back  of  the 
investment  is  decreased  through  attrition.  Only  when  this  attri- 
tion is  fully  compensated  by  provision  from  revenue  for  adequate 
mamtenance  and  the  accumulation  of  such  a  reserve  as  will  repre- 
sent the  amount  by  which  maintenance  fails  to  keep  property  at 
full  investment  value,  is  such  protection  forthcoming. 


i 


26 


Service  At  Cost  Agreements 


The  effect  upon  the  imhlic  interest  of  failure  to  provide  ade- 
quate niaiiiteiiaiu'e  and  a  sufficient  resca-ve,  is  particularly  evident 
in  the  e:Lse  of  conununities  which  may  exercise  their  option  either 
to  purcha.^e  or  allow  a  licensee  to  purchase.  The  purchase  price  is 
in  many  such  cases  based  on  the  capital  value  of  the  company 
without  revaluation.  If  full  value  is  not  behind  capital  value,  pur- 
chase by  the  city  at  such  a  price  and  under  such  conditions,  means 
that  the  future  users  of  the  service,  arc  paying  for  property  which 
has  been  ^lissipatcd  in  the  service  of  past  users  of  the  service,  and 
purchase  by  a  licensee,  means  that  the  licenst^e  is  receiving  less  in 
value  tlian  he  pays  for.  If,  on  the  other  hand,  revaluation  is  pro- 
vided as  a  means  of  determining  pnrclias(»  price,  then  a  large  part 
of  the  invc^stnient  is  confiscated. 

The  position  of  the  industry  generallly  in  regard  to  this  question 
of  maintenance  and  depreciation,  was  expressed  in  the  following 
resohiti*m  adopted  by  the  American  Electric  Railway  Asscn-iatioii 
at  a  me«4ing  held  in  Cleveland,  on  January  8,  1920: 

Besohed:  That  the  American  Electric  Railway  Association 
ieconnn(^n<ls  to  its  MemlK^r  C'ompanies  that,  wherever  jjossi- 
ble,  they  provide  in  their  accounting  practice,  for  the  crea- 
tion of  adequate  res<*rves  to  insure  the  property  in  advance  of 
actual  replacenK'nt  and  abandonment,  and  that  such  reserves 
shall  be  provided  in  exist  of  service  franchises. 

It  is  therefoi-e  essentitd  to  the  protection  of  capital  invested  in 
local  transportation,  that  adetjuate  provision  be  made  for  main- 
tenance j.iul  that  reserves  be  accumulated  from  earnings,  to  an 
amount  that  represents  tlie  difference  between  the  value  of  the 
physical  property,  and  the  sum  of  the  capital  investment. 

Conclusions 

li  is  esseiUud  to  the  protection  of  capital  mveMed  in  local 
tramportatlmi  thai  losses  because  of  wear  and  tear,  oljsolescence 
and  supersession  he  made  up  from  revenue. 

Not  only  should  the  property  he  currently  maintained  so  as  to 
he  in  the  most  efficient  operaiing  condition  hut,  in  addition,  there 
should  he  currently  reserved  from  revenues,  sums  sufficient  to 


Service  At  Cost  Agreements 


27 


provide  for  future  ren^ewah  and  replacements,  so  that  at  all  times 
the  full  value  shall  be  represented,  hy  property  or  reserves. 

Adequate  maintenance  and  sufficient  reserves  are  required  In 
the  public  Interest,  since  proper  service  depends  U[>on  nmlntenaivce, 
while  inadequate  reserves  put  an  Inequitable  burden  upon  future 
car  riders. 


CHAPTER  SIX 

The  Investor 's  Requirements 

Return  —  Investor's  Power  to  Prescribe  Return  — His  Three  Primary 
Requirements  —  The  Cost  of  Money  —  Its  Effect  upon  the  Cost  of  Service  — 
Assurance  of  Retum  Dependent  upon  Revenue  — Sources  of  Revenue  —  Public 
Contributions  and  Public  Imposts— What  the  Community  Owfs  the  Car 
Rider  —  Public  Subsidies. 

Assnred  of  the  Integrity  of  the  investment,  that  is,  that  money 
put  into  the  enterprise  will  not  disappear  or  shrink  in  amount 
during  the  period  of  its  public  use,  the  second  consideration  with 
which  the  pi-ospective  investor  is  confronted  is  as  to  the  return 
which  the  investment  will  make  to  him. 

He  is  a  free  agent.  ^N^ot  even  Government  can  compel  him  to 
loan  his  capital,  notwithstanding  that  the  loan  may  be  for  govern- 
mental or  public  purposes.  Government  may  through  its  powers 
of  taxation  impound  income,  but  it  may  not  requisition  capital. 
In  the  disposal  of  his  accunmlated  savings  the  investor  may  not 
be  controlled,  and  Government  as  well  as  private  enterprise,  must 
met^t  his  requirements  before  either  can  secure  for  its  use  his 
capital.  Thus  the  United  States  Government,  seeking  loans  for 
war  purix)ses  and  aided  by  the  strong  ap^x^al  of  patriotic  duty, 
was  several  times  compelled  to  increase  rate  of  interest  paid  in 
order  to  secure  the  funds  which  it  required. 

Every  enterprise,  governmental  or  private,  is  a  bidder  for  ciipi- 
tal  to  be  used  for  its  own  purposes,  and  for  this  reason  the  money 
market  is  the  most  highly  competitive  mai-ket  in  the  world.  To 
It  must  come  National,  State,  County  and  Municipal  governments, 
as  well  as  public  utilities  and  all  private  enterprises  which  seek 


W'O 


Service  At  Cost  Agreements 


Service  At  Cost  Agreembtnts 


29 


I 


capital,   and  in  it  all  are  on  the  same  footing  as  regards  tlie 
indueeiiients  which  they  have  to  otier.    These  are 

F*irst,  Safety. 

Second.  Assurance  of  return. 

Third,  Rate  of  return. 

The  rate  of  return  is  dependent  upon  the  factors  of  safety  and 
assuranw.  To  the  degree  that  the  risk  of  loss  or  interruption  of 
return  enters  into  the  investment,  the  rate  of  return  demanded  or 
expect (hI  will  vary.  Money  for  speculative  purposes,  where  the 
risk  of  its  1«ksh  is  gi'eiit  and  wliere  the  prospecit  of  return  depends 
ujMiii  ciri  lunstances  not  easily  forecast,  insists  upon  a  high  rede  of 
return.  Money  guarded  against  loss  and  assured  of  its  retui*n  is 
eonttnit  with  a  lower  rate.  These  are  financial  fundamentals, 
illustrated  hy  the  low  rate  paid  U[x>n  the  securities  of  the  United 
Statt^s  (iovernnicnt,  and  the  large  profits  reap(?d  in  successful 
enterprises  of  a  s|HM'iilative  nature.  They  must  he  kept  in  mind 
in  this  discussiim  kn-ause  the  cost  of  money,  which  includes  not 
only  the  return  pa-id,  but  the  terms  upon  which  it  is  obtained,  is 
an  important  element  in  the  cost  of  providing  electi'ic  railway 
service  and  so  bears  directly  upon  the  relations  between  the  public 
and  the  compimies  furnishing  that  service?. 

The  cost  of  money  is  reflected  in  two  principal  ways:  first,  in 
the  rate  of  return  demanded  and  second,  in  the  price  obtained  for 
the  setmrities  of  the  enterprise.  In  reality  the  second  is  but  a 
retlex  of  the  first,  since  if  the  rate  of  return  be  fixed  upon  par- 
value,  it,  the  rate,  is  increased  or  decreased  as  the  actual  price 
paid  for  the  security,  is  more  or  less  than  par  value.  The  money 
market  is  a  constantly  changing  market  and  it  is  impracticable 
to  frequently  alter  interest  on  securities  to  meet  its  demands. 
The  constHjuence  is  that  variations  in  the  cost  of  money  is  indi- 
cated not  so  much  by  the  rate  of  interest  which  these  securities 
bear,  as  by  the  price  wdiich  may  be  obtained  for  them.  This  is 
plainly  shown  by  a  merely  casual  study  of  the  lx>nd  sales  on  the 
New  York  Stock  Exchange.  Between  January  1,  1920  and  April 
12,  1920,  but  twenty-seven  of  the  397  issues  of  bonds  dealt  with  on 
this  exchange  reached  par.    The  rest  w^ere  bought  and  sold  at  prices 


having  the  widest  possible  range,  although  the  rate  of  interest 
niwMi  par  value  was  the  same  throughout  the  entire  period. 

The  cost  of  money,  whether  it  be  reflected  in  the  rate  of  return 
necessary  to  secure  it,  or  the  price  at  which  the  securities  can  be 
disposed  of  is  one  of  the  important  costs  in  the  operation  of  a  local 
transportation  system.  In  1917,  when  the  last  census  of  electric 
railways  was  taken  by  the  United  States,  thirty  jx>r  centum  of  all 
charges  against  the  conduct  of  the  enterprise  were  charges  on 
acc<nint  of  capital  —  interest  on  funded  debt,  I'entals,  dividends 
and  sur2>lus.  The  imjK>rtance  of  obtaining  capital  upon  the  most 
favorable  terms  is  plainly  indicated  by  this  statement,  and  the 
most  favorable  terms  can  be  obtained  only  when,  in  addition  to 
assurance  that  the  integrity  of  the  investment  will  bo  preserved, 
there  is  assurance  that  return  will  be  constant  and  that  it  will  be 
at  a  satisfactory  rate. 

For  capital  invested  in  local  transportation,  or  for  that  matter, 
invested  in  any  other  enterprise,  there  can  be  assurance  of  n^tum 
only  if  there  ho  assuranco  of  adequate  revenue,  and  adequate  reve- 
nue, in  the  case  of  local  transportation,  can  be  secured  only  from 
earnings  —  the  money  collected  from  the  users  of  the  sei'vice  —  or 
from  public  contributions. 

The  idea  of  public  contribution  towards  the  cost  of  providing 
local  transportation  service  was  unheard  of  a  few  years  ago. 
Today  it  is  being  constantly  put  forward,  not  by  the  representa- 
tives of  the  companies,  but  by  the  representatives  of  the  public, 
who,  impressed  with  the  social  importance  of  the  service  furnished, 
are  urging  that  its  cost  be  distributed  against  all  who  benefit  and 
not  alone  upon  its  users.  As  has  l)een  Ix^fore  pointed  out,  local 
transportation  permits  the  development  of  communities  in  the  way 
In^st  calculated  to  promote  health,  comfort,  convenience  and  morals. 
This  is  a  function  that  benefits  every  member  of  the  community, 
irresjxictive  of  the  extent  to  which  he  or  she  may  use  the  service. 
It  is  a  tangible,  actual  asset,  which  in  part  can  be  expressed  in 
dollars  and  cents.  In  Toledo,  for  instance,  the  street  car  service 
was  suspended  for  twenty-seven  days.  John  N.  Willys,  the  presi- 
dent of  Toledo's  largest  industry,  estimated  the  loss  to  the  city's 
business,  and  this  apart  from  the  loss  sustained  by  the  car  riders, 
at  $50,000  a  day,    The  merchants  lost  trade,  the  amusement  enter* 


§ 


» I 


M 


11 


30 


Sekvice  At  Cost  Agreemejnts 


I 


prises  lost  patronage,  manufacturers  reported  substantial  and  costly 
interference  with  their  operations,  the  real  estate  dealers  a  practi- 
cal cessation  of  trading,  and  so  on  through  a  long  list,  which 
showed  that  the  interests  of  aJl  classes  of  business  were  vitally 
affected. 

According  to  the  report  of  the  City  Club  of  New  York  City, 
the  increase  in  value  of  property  in  the  Borough  of  Manhattail 
benefited  by  Ae  construction  of  the  Broadway  subway,  readjusted 
so  as  to  eliminate  the  normal  rise  in  value,  amounted  between  the 
years  1900  and  1907,  to  more  than  six  times  the  cost  of  its  con- 
struction while  between  1903  and  1912,  the  assessed  value  of  prop- 
erty in  the  Borough  of  the  Bronx,  increased  from  $226,596,647 
to  $616,521,378,  an  increase,  due  practically  in  its  entirety,  to 
the  building  of  the  Bi-onx  extension  of  the  subway.     A  similar 
increase  in  real  estate  values  will  be  found  to  follow  the  opening  of 
new  transportation  lines  in  any  growing  city  and  the  experience  of 
New  York  is  cited  only  because  physical  conditions  in  that  city 
are  such,  that  its  astounding  growth  would  not  have  been  possible 
ftt  all,  had  it  not  been  for  the  development  of  its  transportation 
system. 

It  is  unnecessary  to  give  further  instances  of  the  benefits  con- 
ferred by  local  transportation  systems  upon  others  than  the  users 
of  the  service  it  furnishes.    It  is  evident  that  there  is  no  greater 
factor  in  the  social  life  of  communities.     Yet,  there  has  been  no 
recognition  of  the  obligation  owing  to  this  utility  by  the  commun- 
ity as  a  whole,  but  on  the  contrary  the  operation  of  the  local  trans- 
portation system  has  in  ihe  great  majority  of  cases  been  seized 
upon  as  an  excuse  for  the  imposition  of  additional  burdens  of  tax- 
ation upon  that  particular  part  of  the  public  which  uses  its  sei-vice. 
The  following  recital  of  a  part  of  the  taxes  and  imposts  which  have 
been  and  are  now  being  imposed  upon  electric  railways,  illustrates 
the  extent  to  which  the  Federal,  State  and  local  governments  are 
using  these  utilities  as  convenient  bearers  of  the  public  burden  of 
taxation : 

By  the  Federal  Government  —  Income  and  excess  profit 
taxes. 

\  By  State  Governments  —  Income,  realty,  personal  prop. 

:         erty  and  franchise  taxes. 


Service  At  Cost  Ageeemej^ts 


31 


By  Local  Commimities  —  Franchise,  property,  gross  re- 
ceipt, school,  park,  pole,  car,  wire  and  rail  taxes;  paving 
construction,  paving  maintenance,  street  cleaning,  snow  and 
ice  removal,  street  sprinkling,  free  current  for  community 
purposes,  bridge  and  viaduct  construction  and  maintenance, 
free  transportation  for  community  employes,  payment  of 
traffic  police. 

In  1917  according  to  the  United  States  Bureau  of  the  Census, 
10.11  per  centum  of  the  operating  expenses  of  the  electric  rail- 
ways of  the  country  were  made  up  of  taxes.    "  Taxes  "  under  this 
classification  does  not  include  what  have  before  been  referred  to 
as  "  imposts."     For  214  companies,  such  imposts,  according  to 
figures  compiled  by  the  American  Electric  Railway  Association, 
amounted  to  $20,442,000  in  a  single  year,  as  compared  to  "  taxes  " 
for  the  same  year  of  $40,761,000,  or  more  than  one-half.     Nor 
is  this  all,  since  a  large  portion  of  the  imposts  require  capital 
expenditures,  which  must  be  added  to  the  capital  burden  of  the 
utilities,  and  upon  which  interest  must  be  paid  as  in  the  case  of 
other  capital.    This  interest  charge  on  account  of  expenditures  for 
purely  governmental  purposes  is  not  insignificant.    The  engineers 
employed  by  the  special  Commission  appointed  by  the  Rhode 
Island  Legislature  to  investigate  the  affairs  of  the  Rhode  Island 
Company,  reported  in  1918  that  of  the  $33,275,184  representing 
the  reproduction  value  of  the  Company's  property,  $2,666,622 
represented  pavement  constructed  for  the  communities  by  the  Com- 
pany.   Thus  some  eight  per  centum,  of  the  annual  interest  charges 
to  be  earned  from  the  fares  of  the  car  riders  of  this  company  were 
made  necessary  by  public  requirements  which  had  little  if  any- 
thing to  do  with  the  efficiency  of  the  system  as  a  transportation 
medium. 

A  conservative  estimate  of  the  charges  imposed  by  government 
on  the  conduct  of  an  electric  railway  is  that  they  constitute  at 
least  ten  per  cent  of  the  total  cost  of  operation  including  pay- 
ments on  account  of  capital,  so  that  from  each  five  cent  fare, 
government  takes  one-half  cent,  out  of  each  six  cent  fare  it  takes 
.60  cent,  out  of  each  seven  cent  fare  .70  cent,  out  of  each  eight 
cent  fare  .80  cent,  out  of  each  nine  cent  fare  .09,  and  out  of  each 
ten  cent  fare,  one  full  cent. 


32 


Sekvice  At  Cost  AoreemFxNts 


Service  At  Cost  Agreements 


33 


i 


Contrast  the  treatment  thus  accorded  the  users  of  local  trans- 
portation service  with  that  received  by  the  users  of  municipally 
operated  water  utilities,  which  differs  only  in  degree  from  local 
transportation  as  a  public  necessity.  The  car  rider  pays  rates, 
increased  by  the  addition  of  all  the  various  taxes  and  imposts 
enumerated,  or  is  given  servico  the  extent  and  character  of  which 
is  affected  by  them,  while  the  latter  is  not  only  not  compelled  to 
assume  this  burden,  but  in  many  instances  is  relieved  of  charges 
which  should  properly  be  included  as  a  cost  of  the  service  he 
receives,  through  their  assumption  by  other  departments  of 
government 

For  the  use  of  its  street  by  the  car  riders,  the  communities  exact 
large  charges  in  the  form  of  both  taxes  and  imposts,  while  for  an 
even  greater  use  and  occupancy  by  the  users  of  other  vehicles, 
they  make  no  charge,  or  at  the  best  a  small  charge  as  in  the  case 
of  certain  fees  and  licenses  paid  by  motor  vehicles  and  their 
drivers.  For  the  accomodation  of  30,  40,  60  or  100  persons,  as 
the  case  may  be,  the  street  car  occupies  for  such  time  as  it  may 
take  it  to  progress  from  one  end  of  its  route  to  the  other,  a  portion 
of  the  street  in  which  it  provides  and  maintains  itsi  own  track, 
and  so  interferes  with  other  traffic  only  for  the  time  that  it  is 
actually  in  transit.  On  the  other  hand,  the  automobile  for  the 
accomodation  of  from  one  to  six  persons,  not  only  takes  up  almost 
as  much  of  the  roadway  while  in  transit,  but  makes  use  of  it  for 
stwage  purposes  for  long  periods  of  time  and  so  adds  greatly  to 
the  congestion,  and  as  a  consequence  of  its  operation  actually 
destroys  and  wears  out  the  pavement  for  the  construction  and 
maintenance  of  which  the  car  rider  pays. 

In  1915,  a  traffic  count  of  persons  entering  and  leaving  the 
business  district  of  the  city  of  Denver,  showeil  that  of  260,181 
other  than  pedestrians,  201,794  entered  and  left  by  street  car, 
while  58,387  were  transported  by  other  vehicles.  This  figure  is 
fairly  indicative  of  the  use  of  the  streets  by  riders  in  vehicles 
and  shows  that  of  these  77.5  per  cent  were  car  ridei-s.  Yet  public 
expenditures  for  street  improvement  on  account  of  the  car  rider 
are  charged  to  him  and  paid  either  through  increased  fare  or 
deteriorated  service,  while  not  only  is  he  taxed  as  a  part  of  the 
general  public  for  the  improvements  made  in  the  interest  of  th© 


remaining  22.5  per  cent,  but  in  addition  he  is  taxed  as  a  car  rider 
for  these  improvements,  and  conveniences. 

These  taxes  and  imposts  are  relics  of  past  regulation  of  profits 
under  franchise  contracts  which  fixed  the  rate  of  fare  to  be  charged 
and  which  put  no  limit  upon  the  total  return  to  be  earned.  They 
were  imposed  in  the  belief  that  they  were  paid  by  the  owners  of 
the  property  and  not  by  the  car  rider.  They  can  be  logically 
justified  only  if  the  transportation  be  regarded  as  a  private  enter- 
prise using  the  public  thoroughfare  for  private  gain.  They  can- 
not be  justified  if  the  utility  be  considered  as  performing  a  service 
for  the  public  at  the  lowest  cost  consistent  with  good  service.  With 
fares  regulated  by  the  cost  of  the  service  —  and  under  all  modem 
forms  of  regulation,  whether  by  State  or  local  commissions  or 
under  flexible  fare  ordinances  it  is  so  regulated  —  these  very  sub- 
stantial costs  are  placed  directly  upon  the  user  of  the  service  and 
are  reflected  either  in  the  fares  paid  or  in  the  character  of  the 
service  furnished. 

The  idea  that  a  transportation  utility  is  a  private  business 
enterprise  the  profits  of  which  should  be  clipped  for  the  public 
benefit,  together  with  disregard  of  its  social  and  community  func- 
tions, has  led  in  some  instances  to  an  even  further  extension  of  its 
use  as  a  medium  for  the  collection  of  revenue  for*  the  public 
treasury.  Profit  sharing  as  between  the  utility  and  the  com- 
munities has  been  incorporated  in  some  franchises  and  is  very 
frequently  urged  as  a  measure  in  the  public  interest.  Money  so 
gained  by  tlie  communities  is  taken  from  the  car  rider  and  should 
be  regarded  as  an  additional  tax  upon  this  single  class  of  the 
public. 

The  profit  sharing  plan  as  an  incentive  to  efficiency  and  economy 
on  the  part  of  the  operators  of  a  public  utility  has  much  to  com- 
mend it,  but  the  sharing  should  be  between  the  operators  and  their 
patrons  and  not  the  communities.  The  person  who  makes  use  of 
the  streets  through  the  medium  of  a  street  car,  should  be  com- 
pelled to  assume  no  charge  that  is  not  assessed  against  those  who 
use  the  streets  through  the  medium  of  any  other  kind  of 
conveyance. 

This  principle  is  fast  coming  into  general  recc^ition.  The 
State  Trustees  (public  officers),  who  operate  the  Boston  Elevated 


S4 


Service  At  Cost  Agreements 


■ 


Bailway  Company,  in  a  recent  report  declared  that  subways  are 
^^  nothing  more  than  highways  under  the  surface  "  and  that  the 
public  owes  the  same  duty  to  furnish  a  highway  for  the  street 
car  rider  that  it  owes  to  the  pedestrian  or  other  traveler."    Judge 
Fielder  Sanders,  Street  Kailroad  Commissioner  for  the  city  of 
Cleveland,  has  taken  a  similar  position  in  regard  to  subway  con- 
struction m  the  Ohio  city  and  has  stated  that  in  his  opinion  the 
patrons  of  the  street  railway  system  should  bear  only  such  expenses 
m  connection  with  subway  construction  and  maintenance  as  is 
represented  by  the  decreased  cost  of  operation  in  subways  as  com- 
pared with  the  operation  upon  the  surface.     The  Public  Service 
Commission  of  the  State  of  Washington  has  assumed  a  position 
even  further  advanced  and  in  its  decision  upon  the  application 
of  the  Portland   Railway,    Light   &   Power    Company   for    an 
increased  fare,  decided  March  15,  1^20,  recommended  that  the 
City  of  Portland  relieve  the  company  of  paving  construction, 
paving  maintenance,  bridge  rentals,  franchise  taxes,  car  license 
fees  and  the  free  transportation  of  city  employes  and  that  it 
purchase  the  tracks  of  the  company  and  thereafter  mpply  the 
track  upon  which  the  cars  of  the  ccmipany  operaie. 

This  relief  from  taxation  and  impost  can  not  be'  considered  as 
a  subsidization  of  local  transportation  service.     It  serves  merely 
to  put^the  car  rider  on  the  same  footing,  a^  regards  the  facilities 
furnished  him  by  the  community,  as  is  any  other  user  of  the 
streets.    As  a  matter  of  equity  and  justice,  the  community  might 
well  carry  the  matter  further  and  itself  assume  such  part  of  the 
cost  of  service  as  represents  benefits  received  by  it  from  the  service 
as  distinct  from  the  benefits  which  the  car  rider  receives      The 
difficulty  of  correctly  assessing  such  benefits  presents  an  obstacle 
but  not,  however,  an  insurmountable  one.     The  city  of  Chicago' 
did  propose  in  connection  with  the  construction  of  citv  owned  sub- 
ways, that  the  cost  should  in  part,  be  borne  by  the  property  bene- 
litad,  the  assessment  to  foUow  much  the  same  form  used  in  assess- 
ing the  benefit  of  street  openings. 

Two  forms  of  public  contributions  are  now  provided  by  the  laws 
of  Massachusetts,  the  first  through  the  temporary  assumption  by 
the  State  of  deficits  in  the  cost  of  service  to  be  later  repaid  from 
the  earnings  of  the  company;  the  second,  direct  payments  by  the 


Service  At  Cost  AGRfiEMBftTtS 


35 


communities  for  the  purpose  of  keeping  down  the  rate  of  fare. 
In  neither  case,  however,  is  the  proposed  relief  anything  more 
than  an  emergency  measure.  In  the  first  instance  it  constitutes 
merely  the  loaning  of  the  State's  credit  and  funds  for  the  purpose 
of  improving  the  credit  of  the  enterprise  and  is  not  a  direct 
recognition  of  the  community's  obligation  to  the  service.  In  the 
second  instance,  the  basis  of  payment  is  the  difference  between 
pre-war  and  post-war  costs,  so  that  it  must  be  considered  as  a 
temporary  expedient  to  meet  a  particular  emergency  and  not  the 
recognition  of  a  general  principle. 

The  interest  of  the  investor  both  in  relief  from  public  charges 
and  in  the  contributions  towards  the  cost  of  the  service,  is  as  to 
the  degree  of  surety  given  to  his  investment.  The  matter  of  assess- 
ments against  the  car  rider  through  the  medium  of  the  transporta- 
tion company,  as  well  as  the  extent  to  which  the  public  shall  con- 
tribute to  the  cost  of  service  is  primarily  a  question  between  the 
car  rider  and  the  general  community.  It  affects  the  investor 
only  as  it  gives  or  fails  to  give  assurance  that  adequate  revenues 
will  be  forthcoming  from  which  his  return  can  be  paid.  As  thei 
cost  of  the  service  reaches  a  point  where  fares  become  so  high  as 
to  prevent  riding,  the  ability  of  the  company  to  earn  adequate 
revenue  is  affected  and  the  necessity  arises  of  relieving  the  enter- 
prise from  charges  which  make  high  fares  necessary,  or  of  calling 
ujx)!!  the  general  community  to  bear  that  part  of  the  cost  of 
service  which  may  be  equitably  charged  to  it  because  of  the 
benfits  which  it  receives. 

Conclusions 

Moite  of  return  depends  in  large  measure  upon  assurance  of 
return,  which  is  only  present  if  the  revenues  of  the  enterprise  he 
sufficient, 

Revenue  of  local  transportation  enterprises  comes  from  two  prin- 
cipal sources,  the  user  of  the  service  and  public  contributions. 

Taxes,  imposts  and  other  public  charges,  are  ultimately  paid  hy 
the  car  rider,  either  directly  through  the  fare  charged,  or  indirectly 
in  decreased  service. 

Local  transportation  enterprises  perform  a  social  and  commun- 
ity service,  in  addition  to  that  performed  for  the  direct  user  of  the 


36 


Service  At  Cost  Agreemeotds 


service,  which  justifies,  if  mcessarij,  the  assumption  of  some  part 
of  the  cost  of  servwe  hj  the  community  as  a  whole,  amd  Tnakes 
specif  taxation  ami  the  levying  of  specif  imposts  upon  these 
enterprises  unjustifiable. 


CHAPTER  SEVEN 
The  Provisioii  of  Bevenne 

Return  — Revenue  from  Operation  —  Price  Dependent  Upon  Cost  — Ele- 
ments of  Cost  — Power  of  Enterprise  to  Control  —  Necessity  of  Automatic 
Adjustment  — Delay  in  Adjustment  and  Its  Effect  —  Determination  of  Proper 
Rate  Not  Difficult  —  Fare  Systems  and  Rates  of  Fare  —  The  Prevention  of 
Frequent  Fluctuations  in  Rates. 

It  is  to  the  fares  received  from  -the  car  rider  that  local  trans- 
portation systems  must  look  for  the  gre^iter  part  of  their  revenue 
and  it  is  therefore  with  the  assurance  that  these  will  be  sufficient 
to  cover  the  expense  of  the  business  that  the  prospective 
investor  is  chiefly  concerned.  There  can  be  no  doubt  as  to  the 
correct  principle  to  be  applied.  It  has  been  developed  through  the 
economic  experience  of  the  world  through  all  time.  The  price 
of  any  commodity,  whether  it  be  material  or  service  must  be  based 
upon  its  cost  and  changes  in  priw^  must  respond  to  changes  in 
cost  The  costs  of  conducting  an  electric  railway  enterprise  may 
be  thus  grouped : 

Ftrst,  the  cost  of  operation,  i.  e.,  those  charges  whicJi  arise 
because  of  actual  operation  of  the  cars,  including  the  main- 
tenance of  the  physical  property,  both  through  current  repairs 
and  renewals  and  through  reservations  against  wear  and 
obsoleseeinee ; 

Second,  the  cost  arising  through  taxes  and  imix)sts,  which 
include  all  .of  the  various  charges  levied  against  the  enter- 
prise by  government ; 

Third,  the  cost  of  capital,  including  the  return  paid  for  its 
use  and  such  items  as  discount  on  securities  which  arise  from 
the  expense  of  securing  investment 


Service  At  Cost  Agreemknts 


87 


All  of  these  elements  of  cost  are  variable.  Not  one  of  them 
can  be  estimated  for  any  considerable  period.  Each  is  cotntroUed 
by  circumstances  over  which  neither  the  entei*prise  nor  the  com- 
munity has  extensive  control.  They  are  affected  not  only  by  the 
purchasing  power  of  the  dollar,  but  by  the  particular  conditions 
surrounding  the  conduct  of  each  enterprise.  Thus,  cost  of  opera- 
tion varies  with  geographical  conditions,  the  proximity  of  fuel 
supply,  the  availability  of  hydro-electric  power,  the  prevailing  rate 
of  wages,  the  topographical  lay-out  of  the  community,  the  service 
requirements  of  the  public,  and  numerous  other  factors.  The  cost 
arising  from  taxes  and  imposts  varies  according  to  the  policy  of 
government  in  its  treatment  of  the  enterprise.  The  cost  of  money 
varies  with  the  attractiveness  of  the  investment  and  the  general 
conditions  of  the  money  market. 

The  price  of  the  commodity  sold,  transportation,  must  invari- 
ably in  the  end  be  governed  by  these  costs,  otherwise  the  enter- 
prise must  cease.  Economic  law  dictates  that  either  the  fare 
received  shall  be  sufficient  to  cover  the  cost,  or  the  service  decreased 
so  as  to  come  within  the  price.  There  is  no  escape  from  this 
conclusion. 

It  is  therefore  evident  that  assurance  of  return  can  only  be  given 
the  investor  if  there  be  provided  some  method  by  which  price  can 
be  quickly  and  automatically  adjusted  to  meet  the  cost  of  the  serv- 
ice upon  which  it  is  based.  Attempts  to  adjust  it  through  contracts 
fixing  rate  of  fare  have  failed,  because  it  has  not  been  possible  to 
accurately,  or  even  approximately,  determine  in  advance  and  for 
any  considerable  period  the  cost  upon  which  the  fare  should  in 
justice  both  to  the  public  and  the  enterprise  be  based.  Attempts 
to  adjust  it  through  the  determination  of  legislative  bodies,  or 
through  commissions  to  which  the  powers  of  legislative  bodies  have 
been  delegated,  have  been  almost  equally  futile,  because  the 
process  is  so  cumbersome  and  slow  and  so  subject  to  interference 
from  causes  alien  to  the  issues  that  loss  to  the  enterprise  almost 
invariably  follows. 

Belay  in  adjusting  price  to  cost  prevents  continuity  of  return 
and  so  decreases  the  rate  of  return.  It  is  for  this  reason  that  the 
process  of  rate  readjustment  through  the  usual  utilities  conunission 


38 


Sekvice  At  Cost  AoEEEMirijrrs 


Service  At  Cost  Agreemitnts 


39 


procedure  is  not  sufficiently  responsive  to  meet  the  requirements 
either  of  service  or  of  investment.  By  this  method  rates  are 
increased  or  decreased  not  in  step  with  the  variations  in  cost  of 
service,  but  long  after  such  increases  or  decreases  have  occurred, 
and  in  the  case  of  increases  there  is  almost  invariably  a  long 
period  during  which  the  enterprise  has  insufficient  revenuei, 
either  to  provide  the  service  which  should  be  furnished,  ox  to  pay 
the  return  to  which  the  investment  is  entitled. 

Yet  the  determination  of  the  correct  price  for  the  'commodity 
furnished  by  transportation  utilities  presents  no  difficulties.  The 
elements  that  go  to  make  up  cost  are  perfectly  well  known.  The 
calculation  of  such  costs  is  a  matter  of  accounting,  the  principles 
of  which  have  come  to  be  universally  recognized.  Under  a  system 
of  regulation,  such  as  now  exists  in  almost  every  State  and  every 
community,  the  methods  and  practices  of  ojx^ration  are,  or  can 
be,  controlled  by  the  representatives  of  the  public,  the  taxes  and 
imposts  are  dictated  by  the  public  and  the  return  to  be  allowed 
is  a  matter  of  the  prevailing  cost  of  money. 

The  price  is  therefore  not  a  matter  to  be  based  upon  judgment, 
but  is  a  matter  to  be  based  upon  fact,  and  as  such  can  be 
automaitcally  adjusted  to  at  all  times  meet  cost. 

The  province  of  judgment  lies  outside  the  question  of  price.  Its 
business  is  to  deal  with  the  efficiency  and  economy  of  operation 
and  with  the  system  of  fare  charges  through  which  the  price  of 
the  commodity  is  collected.  To  ascertain  the  total  amount  of 
revenue  which  must  be  obtained  to  pay  the  cost  of  service  is  a 
question  of  arithmetic;  to  determine  the  system  of  charges  by 
which  this  revenue  shall  be  obtained  is  a  question  of  judgment 
There  is  today  no  general  agreement  upon  any  particular  system 
of  local  transportation  fares.  Flat  rates,  distance  tariffs,  zone 
systems,  charges  for  transfers,  commutation  rates,  rates  varying 
with  the  class  of  service  rendered,  and  a  number  of  other  forms, 
each  have  their  advocates  and  each  is  in  effect  upon  certain  prop- 
erties. The  problem  is  to  find  that  system  of  charges  which  will 
induce  the  greatest  riding  at  the  same  time  that  it  produce* 
sufficient  revenue.  The  answer  cannot  come  from  academic  dis- 
cussion but  must  be  reached  through  experimentation.  The  in- 
dustry has  passed  out  of  the  area  of  a  fixed  flat  five-cent  rate  into 


a  period  of  readjustment  of  fare  charges  to  meet  changed  condi- 
tions. No  man  or  body  of  men  can  now  say  as  to  any  particular 
system  that  it  is  the  best  under  all  conditions  and  for  all  com- 
munities. There  must  in  the  interest  of  everyone  concerned  be 
given  wide  latitude  to  those  in  charge  of  or  in  authority  over  the 
enterprise  in  working  out  a  solution.  For  that  reason  it  is  undesir- 
able at  the  same  time  that  it  is  unnecessary,  in  providing  for  the 
automatic  adjustment  of  price  to  cost,  to  go  further  in  fixing 
fares  than  to  stipulate  that  they  shall  be  sufficient  to  provide  tlie 
cost  of  the  service.  So  far  as  the  investor  is  concerned  the  object 
sought  will  bo  attained  if  the  revenue  produced  is  adequate,  while 
the  interest  of  the  public  will  be  protected  if  the  return  to  the 
investor  be  limited  by  the  considerations  which  have  been  set  forth. 

It  is  manifestly  undesirable  that  in  any  form  of  rate  adjust- 
ment there  should  be  frequent  fluctuations.  The  use  made  of 
local  transportation,  and  consequently  the  revenue  derived  there- 
from, is  affected  by  numerous  temporary  changes  which  have  a 
marked  effect  upon  it.  Weather  conditions,  community  events 
which  attract  added  riding  and  other  factors,  all  bear  upon  revenue 
collected,  so  that  were  price,  absolutely  and  at  all  times,  to  follow 
cost,  almost  daily  changes  in  fare  would  be  necessary.  Frequent 
changes  involve  more  or  less  expense  and  inconvenience.  Such 
variations  can  be  absorbed  in  the  same  way  in  which  they  are 
taken  care  of  in  unregulated  business, —  through  the  operations  of 
reserves.  In  other  words,  as  price  fluctuation  is  prevented  in  an 
ordinary  commercial  business,  through  payments  to  cost  from 
surplus,  so  it  can  be  prevented  in  Uie  business  of  local  transporta- 
tion by  payments  from  a  fund  set  aside  and  dedicated  to  that 
purpose. 

Through  the  operation  of  such  reserves,  fare  increases  occur 
only  at  such  periods,  as  give  plain  evidence  that  the  increase  or 
decrease  is  necessary  because  of  more  or  less  permanent  causes 
and  not  merely  passing  and  temporary  variations  in  revenue. 
Moreover,  they  insure  sufficient  funds  to  at  all  times  provide  that 
the  quality  and  extent  of  the  service  prescribed  will.be  maintained 
and  that  the  return  to  the  investor  will  be  paid  when  it  is  due  and 
will  not  be  interrupted. 


Service  At  Cost  Agreemettts 


Service  At  Cost  Agreemfnts 


41 


I 


1 

1 


Assurance  of  return,  upon  which  the  rate  of  return  which  must 
be  paid  to  attract  capital  for  public  utility  enterprise  depends, 
can  be  obtained,  first  through  automatic  regulation  of  price  in 
accordance  with  cost,  and  second  by  the  assumption  of  the  com- 
munities of  such  sufficient  portion  of  the  cost  of  the  service,  as  will 
make  possible  a  rate  of  fare  that  will  encourage,  and  not  discourage, 
riding. 

Conclusions 

The  main  assurance  of  return  upon  capital  medin  local  trans- 
portaiion  must  come  from  the  provision  of  sufficient  revenue 
derived  from  charges  levied  against  the  users  of  the  service. 

Such  charges  should,  therefore,  he  aiUomatically  adjusted  to 
provide  the  fuM  cost  of  the  service,  including  a  fair  return  to 
capiial. 

The  interests  of  the  puhlie  wMl  he  protected,  if  in  this  auto- 
matic adjustment  of  priee  to  cost  tlie  mmn  consideration  he  tlie 
provision  of  sufficient  revenue,  leaving  the  system  of  clwrges  to 
the  dete7*mimUion  of  the  maiuigement,  acting  urith  tlie  approval 
of  the  reguJaiory  authorities. 

It  is  essential  to  efficiency  that  provision  he  made  against  too 
frequent  fluctuation  in  the  raies  of  fare,  while  at  the  same  time  a 
continuous  return  he  assured. 


CHAPTER  EIGHT 
Management  and  Control 

Management  as  Distinct  from  Capital  a  Necessity  to  the  Enterprise  —  Ita 
Nature  —  Cannot  Be  Obtained  without  Reward  — Its  Relation  to  the  Car 
Rider  — Provision  of  Incentive  —  Regulation  and  Management  —  Theory  of 
Regulation  — State  and  Local  Regulation  —  Importance  of  Public  Co-Oper- 
ation—Supervision versus  Management  —  Authority  and  Responsibility  In- 
separable—Prescription of  Public's  Right  to  Demand  Service  —  Control  over 
Operation  —  Maintenance  —  Finances  —  Arbitration. 

We  have  discussed  the  conditions  under  which  private  capital 
may  best  in  the  public  interest  be  attracted  into  the  conduct  of 
local  transportation.  Capital  is,  however,  but  one  of  the  two 
things  which  is  essential  to  the  successful  operation  of  the  enter- 
prise.   Management  is  equally  important    Indeed,  the  argument 


most  frequently  advanced  in  support  of  private  operation  of  public 
utilities  is  that  private  management  is  better  than  public  manage- 
ment, not  that  private  capital  can  bo  secured  more  cheaply. 

If  a  community's  object  be  merely  to  secure  certain  sums  of 
money  for  public  utility  purposes,  there  is  ordinarily  no  need  of 
attracting  private  enterprise  to  the  business.  The  money  may  be 
more  readily  and  more  cheaply  obtained  by  pledging  the  com- 
munity's credit.  But  experience  has  shown  that  the  money  once 
obtained,  its  expenditure  to  provide  the  service  desired,  and  the 
conduct  of  that  service  after  the  facilities  to  produce  it  are  pro- 
vided, cannot  in  the  first  instance  be  made,  and  in  the  second  in- 
stance be  carried  on  as  cheaply  and  efficiently  by  the  communities 
directly,  as  by  private  enterprise  enlisted  in  the  community's 
seiTice. 

Management  is  moro  than  mere  direction  or  supervision.  It 
includes  business  wisdom,  foresight,  initiative,  vision,  the  ability 
to  plan  for  the  future  as  well  as  to  provide  for  the  present.  Upon 
it  depends  the  success  or  failure  of  all  enterprise.  To  be  success- 
ful it  must  bring  experience,  training,  knowledge  and  executive 
ability  to  its  assistance.  The  attributes  which  make  for  good 
management  are  those  which  are  the  most  ardently  sought  for  and 
the  most  amply  rewarded  in  the  commercial  world,  and  it  is  idlo 
to  think  that  they  can  be  obtained  for  public  service  unless  they 
are  similarly  rewarded. 

The  return  which  mere  capital  demands  is  in  the  nature  of 
interest,  such  as  it  may  obtain  if  it  be  loaned,  as  to  a  bank,  or  upon 
a  real  estate  mortgage,  or  to  State  or  municipal  government.  If 
in  addition  to  the  furnishing  of  money  upon  good  security  the 
public  requisitions  management  of  the  same  kind  that  creates, 
builds  up  and  expands  private  enterprise,  it  must  furnish  incentive 
as  expressed  in  the  return  which  management  as  distinct  from, 
yet  attached  to  capital,  may  secure  in  other  fields  of  activity. 

The  efficiency  of  management  in  private  enterprise  is  in  all  but 
exceptional  cases  reflected  in  the  profits  secured  and  its  award 
come  from  those  profits.  They  constitute  the  yardstick  by  which 
efficiency  is  measured  and  at  the  same  time  are  its  reward.  In 
the  present  imperfect  state  of  human  development  there  is  no  other 
practical  incentive  to  industrial  effort  and  industrial  efficiency 


42 


Sekvice  At  Cost  Aokeements 


than  the  hope  of  pecuniary  profit,  and  any  attempt  to  conduct 
an  important  enterprise,  without  a  recognition  of  the  fact  that  its 
successful  operation,  insofar  as  that  success  relies  upon  the  quali- 
ties which  make  for  good  management,  depend  upon  the  incentive 
•  in  the  way  of  profit,  is  unquestionably  doomed  to  failure. 

Kestricted  merely  to  wages,  capital  and  management  are  bound 
to  perform  a  routine  job  and  no  more.  The  responsibility  of  the 
enterprise  is  not  theirs  and  will  not  be  assumed  voluntarily.  It 
is  only  when  reward  depends  upon  the  manner  in  which  the  task 
is  performed  that  the  best  efforts  of  the  performers  can  be  secured. 
It  is  initiative,  it  is  energy,  it  is  vision,  that  the  community  wants 
from  management,  and  for  these  qualities  it  must  pay. 

Therefore,  in  addition  to  the  return  which  capital  as  such  must 
have  if  it  is  to  be  secured  *for  the  business  of  local  transporta- 
tion, there  is  the  return  which  management  must  be  given,  and 
this  return  must  be,  not  a  fixed  stipend  to  be  paid  irrespective 
of  the  service  furnished,  but  a  share  in  the  revenue  produced', 
depending  in  amount  upon  the  degree  to  which  the  prime  quali- 
ties of  management  are  exercised. 

Good  management  creates  a  benefit  to  the  car  rider.  It  should 
be  exerted  in  his  interest  and  the  profits  which  it  creates  should 
be  shared  as  between  the  car  rider  and  the  management  in  such 
proportion  as  will  provide  a  sufficient  incentive  to  bring  out  the 
best  qualities  of  management.  If  the  general  community  receives 
a  portion  of  the  profits,  it  is,  in  theory  and  in  fact,  a  contribution 
levied  upon  the  car  rider  and  not  warranted  by  any  privileges 
granted  or  task  performed,  in  connection  with  the  service,  by  the 
community. 

The  failure  to  provide  incentive  to  management  has  been  ur^^ed 
as  a  fundamental  weakness  of  the  earlier  service  at  cost  agreements. 
Such  failure  is,  however,  an  omission  which  can  readily  be  cor- 
rected and  it  cannot  be  too  strongly  urged  that  reward  for  manage- 
ment is  a  proper  and  very  necessary  element  in  the  cost  of  service, 
which  must  be  paid  from  the  revenue  collected  if  the  best  service 
is  to  be  provided. 

The  right  of  government  to  control  and  regulate  public  utilities 
is  beyond  question.  Within  the  restrictions  imposed  by  the  Four- 
teenth Amendment  to  the  Constitution  of  the  United  States  which 


n 


Service  At  Cost  Agreeme-xXts 


43 


forbids  the  taking  of  property  without  due  process  of  law,  govern- 
ment may  prescribe  both  rates  and  service  and  the  manner  in 
which  money  shall  be  secured  for  public  utility  purposes. 

Such  power  of  regulation  in  the  case  of  intra-State  utilities  is 
possible  under  the  police  powers  of  the  Statb,  and  is  to  be  exercised 
for  the  benefit  of  the  people  of  the  entire  commonwealth.  Unless 
specifically  delegated  by  the  constitution  of  the  State  to  the  com- 
munities, this  power  is  vested  in  the  State  Legislature,  to  be 
exercised  by  the  Legislature  directly  or  by  del^ation.  These 
principles  have  been  firmly  established  by  the  decisions  of  the 
Supreme  Court  of  the  United  States,  and  have  been  recentlv  re- 
affirmed  in  a  number  of  decisions  directly  affecting  local  trans- 
portation companies. 

The  theory  as  to  local  transportation  lines  especially  is  easily 
understandable.  The  highways  of  a  State  are  in  truth  its  arteries 
of  communication.  The  co-ordination  of  the  various  units  forming 
the  State  is  impossible  without  them.  The  State  must  therefore 
control  them  as  a  measure  to  secure  its  own  existence,  for  other- 
wise that  communication  and  close  relationship  between  its  various 
parts  would  be  at  the  mercy  of  local  communities.  The  streets 
of  a  city  are  a  part  of  the  State's  highways  and  the  power  of  the 
State  over  them  is  as  complete  as  are  its  powers  over  the  roads 
and  highways  outside  of  cities  and  such  authority  as  communities 
exercise  over  their  streets  are,  except  where  by  the  State  Constitu- 
tion police  powers  have  been  delegated  to  cities,  as  in  the  case  of 
Colorado,  only  such  as  the  Constitution  or  the  Legislature  has 
specifically  granted  to  them  and  are  at  all  times  subject  to  the 
superior  power  possessed  by  the  Legislature  acting  for  the  entire 
people  of  the  State. 

As  a  matter  of  convenience,  however,  the  delegation  of  the  Legis- 
lature's power  of  regulation  to  some  better  equipped  and  more 
readily  responsive  body  is  essential  to  proper  administration. 
Whether  this  delegation  of  power  be  directly  to  the  communities, 
or  to  a  State  commission  acting  for  the  Legislature,  and  possessed 
of  legislative,  judicial  and  executive  power  is  a  question  that 
should  be  determined  by  practical  considerations,  among  which 
there  may  be  cited  these : 


44 


Service  At  Cost  Agreemeats 


f 


'  !' 


I 


Firsi,  Efficiency  —  Can  a  State  commission,  removed 
from  the  influonco  of  local  prejudices,  local  jealousies  and 
local  ambitions,  and  necessai*ily  better  equipped  in  the  way 
of  a  supervising  staif  of  experts,  better  regulate  the  practical 
operation  of  a  local  transportation  system,  than  can  a  city 
officer,  or  officers,  although  the  latter  may  be  in  more  direct 
touch  with  the  sj>ecific  local  needs  and  conditions  'i 

Second,  Popular  Confidence — Can  a  State  commission 
secure  the  same  degree  of  public  co-operation,  an  important 
element  in  the  operation  of  a  transportation  system,  as  can 
local  officers? 

Third,  Equity  —  Considering  that  practically  all  local 
transportation  lines  operate  as  a  unit  in  one  or  more  com- 
•  munities,  can  control  of  such  operation  bt^  givcMi  to  one  com- 
munity to  the  (exclusion  of  another,  and  if  such  control  be 
divided  among  several  communities  will  the  n^ulting  con- 
flict not  be  sufficient  to  interfere  with  the  most  efficient  con- 
duct of  the  lines  in  any  of  the  communities  ? 

As  directly  aifecting  the  companies  operating  the  transportation 
system  the  important  consideration  in  relation  to  the  method  in 
which  control  shall  be  exercised  is  as  to  the  degree  which  public 
co-operation  may  be  secured.  Good  operation  cannot  be  had,  fares 
cannot  be  maintained  at  a  desirably  low  level,  and  service  cannot 
be  properly  provided,  unless  both  the  car  rider  and  the  local  pub- 
lice  authorities  co-oi^erate  with  management.  The  measure  of  the 
co-operation  forthcoming  will  always  depend  upon  the  extent  to 
which  the  problems  of  operation  are  understood  by  the  car  rider 
and  the  local  public.  The  close  relation  between  cost  of  service 
and  the  latitude  for  efficient  operation  permitted  by  the  conunuui- 
ties  is  evident  to  any  student  of  electric  railway  problems.  Sched- 
ule speed,  for  example,  is  one  of  the  most  important  factors  in  the 
cost  of  service  and  depends  to  a  very  large  degree  upon  traffic 
regulation,  which  in  turn  is  in  the  hands  of  local  authorities.  This 
and  other  important  operating  economies  are  dependent  not  upon 
any  powers  which  a  State  commission  may  exercise,  but  upon  the 
action  of  either  the  car  rider  or  the  local  authorities.  An  import- 
ant objective  of  local  transportation  management  must  to  secure 


Service  At  Cost  Agreements 


45 


local  co-operation,  so  that  in  considering  the  relative  advan- 
tages of  State  or  local  control,  the  extent  to  which  each  will  bring 
about  co-operation  must  always  be  kept  in  mind. 

So  far  as  the  principles  under  which  regulation  should  be  exer- 
cised or  concerned,  they  are  equally  applicable  to  both  State  and 
local  control.  The  method  of  detemiining  fares,  which  has  been 
here  discussed,  is  merely  the  theory  under  which  State  regulation 
of  rates  has  all  along  bcxjn  exercised,  cai'ried  to  its  logical  conclu- 
sion and  so  framed  as  to  substitute  rule  for  judgment,  eliminating 
those  elements,  which  tend  in  the  first  place  to  cause  delay,  and  in 
the  second  place,  to  cause  uncertainty.  The  method  of  regulating 
finances  and  sei-vice  should  be  no  different  with  local  control  than 
they  have  been  with  State  control. 

The  function  of  a  political  regulatory  authority  is  supervision 
and  direction  —  not  management.  There  is  a  clean-cut  distinc- 
tion between  the  two.  It  is  the  business  of  the  public  representa- 
tives to  prescribe  the  service  to  bo  furnished  in  the  first  instance, 
and  in  the  second  instance  to  see  that  the  service  so  prescribed  is 
furnished.  They  should  be  fully  qualified  and  equipped  to  per- 
form these  duties.  The  responsibility  of  furnishing  the  service 
prescribed  is  a  responsibility  of  management,  whose  business  it  is 
to  furnish  it  at  the  least  cost  and  with  the  greatest  degree  of 
efficiency.  This  is  a  technical  task  requiring  special  skill  and 
training.  The  responsibility  to  perform  must  be  accompanied  by 
the  authority  to  perform  and  when  regulatory  authorities  assume 
the  functions  of  management,  they  not  only  deprive  management 
of  authority,  but  they  relieve  it  of  responsibility.  The  successful 
operation  of  a  transportation  utility  is  a  more  or  less  complex  and 
involved  performance.  It  requires  a  high  d^ree  of  executive 
ability  and  judgment  and  it  cannot  be  accomplished  in  detail  by 
prescribed  rules  and  regulation.  The  details  as  well  as  the  broader 
policy  which  call  for  the  exercise  of  judgment  are  those  upon 
which  the  success  or  failure  of  the  enterprise  depends.  When 
management  is  relieved  of  responsibility  in  connection  with  them, 
through  the  assumption  of  authority  by  regulatory  officers,  then 
the  very  purpose  for  which  management  is  enlisted  and  rewarded 
is  defeated,  and  the  entire  operation  of  the  utility  might  well  be 
assumed  directly  by  the  public. 


11 


4*1 


46 


Service  At  Cost  Aubeeme"nts 


Eegulation  is  etfectivc,  when  inaiuigeiiiuiit  is  liold  resi>ousible 
for  the  furnishing  of  prescribed  service,  and  it  is  not  effective 
when  authority,  and  hence  responsibility,  is  removed  from  man- 
agement. 

Under  a  system  which  provides  for  the  automatic  determination 
of  fares  the  remaining  function  of  regulation  is,  first,  the  prescrii>- 
tion  of  service  and  the  enforcement  of  the  prescription,  second, 
the  supervision  and  audit  of  the  charges  which  make  up  the  cost  of 
servica    Theoretically,  there  is  no  reason  why  if  fares  be  auto- 
matically increased  so  as  to  provide  revenue  sufficient  at  all  times 
to  cover  the  cost  of  service,  the  public,  acting  through  the  con- 
stituted authorities,  should  not  be  permitted  to  prescribe  service  to 
the  extent  and  of  the  quality  which  it  may  desire.     Practically, 
however,  an  obstacle  presents  itself  in  the  possibility  that  service 
of  such  an  extent  and  quality  will  be  i>rescribed  as  to  make  it 
impossible  to  meet  the  cost  at  any  rate  which  can  be  collected. 
There  is  unquestionably  a  rate  of  faros  or  system  of  fares  for  each 
community,  which  will  attract  the  greatest  number  of  riders,  while 
providing  the  requisite  reveinie  to  cover  the  cost  of  service.    It  is 
this  rate  of  fare  which  should  logically  determine  the  kind  of 
service  to  be  furnished.   To  charge  a  higher  rate  is  to  discourage 
the  use  of  the  facility,  which  is  opposed  to  the  public  interest;  to 
charge  a  lower  rate  means  either  a  deficit  in  revenue,  or  a  reduc- 
tion in  the  service  below  what  the  general  public  is  through  its 
fares  willing  to  pay  for. 

The  prescription  of  service  beyond  the  point  where  the  neces- 
sary fare  supplies  the  maximum  of  riders  and  provides  the  full 
cost  of  service  puts  into  operation  the  law  of  diminishing  return 
and  it  is  entirely  possible  to  require  service  to  an  extent  which 
would  make  it  impossible  to  collect  its  cost  under  any  rate  of  fare, 
since  the  falling  off  in  the  number  of  f ai*es  would  more  than  offset 
the  increase  in  the  rate  of  fare. 

If  it  were  possible  to  ascertain  the  rate  of  fare  descril^ed,  i.  e., 
the  rate  attracting  the  maximum  number  of  riders  consistent  with 
the  payment  of  the  cost  of  service,  the  prescription  of  service 
would  be  a  comparatively  easy  matter,  and  a  stiindard  could  be  set 
up  which  would  make  the  task  of  regulation  simple.  So  many 
factors  are,  however,  involved,  including  the  system  of  charges 


Sebvice  At  Cost  Ageeeme-nts 


47 


whether  by  distance,  zones  or  under  a  flat  rate,  the  merchandizing" 
of  the  service,  the  changing  habits  of  the  communities,  their 
requirements  as  to  rapid  transit  and  other  considerations,  that  here 
again  the  element  of  judgment  enters,  and  it  is  necessary  for  the 
protection  of  the  enterprise  that  there  should  be  a  limit  put  to  the 
powers  of  the  communities  to  require  service.  This  limit  may  well 
be,  so  far  as  the  interest  of  the  enterprise  is  concerned,  the  ability 
of  the  system  to  earn  the  cost  of  the  service  at  the  fare  necessitated, 
although  in  the  general  interest  of  the  public  another  and  much 
more  stringent  rule  might  be  required.  Within  the  limits  thus 
fixed,  it  is  entirely  the  province  of  the  community  to  prescribe 
service,  and  by  service  is  meant  not  only  that  which  may  be  pro- 
vided with  existing  facilities,  but  also  that  which  requires  exten- 
sions, betterments  and  permanent  improvements,  and  it  is  the 
plain  duty  of  the  enterprise  to  provide  such  service  as  may  be  so 
prescribed. 

Sinco  the  price  which  the  public  is  required  to  pay  for  local 
transportation  is  based  upon  the  cost  of  furnishing  the  service,  it 
is  no  more  than  justice  that  the  items  of  this  cost  should  be  under 
the  supervision  and  audit  of  the  public's  representatives.  To 
determine  the  form  of  such  supervision,  it  is  necessary  to  examine 
more  closely  into  the  nature  of  the  items  of  cost.    These  are 

Operating  cost. 

Maintenance  cost,  including  not  only  current  maintenance, 
but    payments    to    reserves    for    future    replacements    and 
'  renewals ; 

Public  charges,  including  taxes  and  all  imposts ; 

The  cost  of  money,  including  first,  return,  and  second,  the 
expense  of  securing  capital. 

There  need  be  no  divergence  of  opinion  as  to  definition  in  con- 
nection with  these  items.  Electric  railway  accounting  has  for  a 
number  of  years  been  upon  a  stable  basis.  The  methods  prescribed 
by  the  Interstate  Commerce  Commission,  are  either  in  form  or  in 
substance,  in  general  use  throughout  the  industry.  The  principles 
of  the  Standard  Classification  of  Accounts  are  universally  recog- 
nized as  correct  and  may  be  applied  to  any  operation  with  justice 
to  these  concerned.     The  object  of  supervision  is,  therefore,  to 


48 


Service  At  Cost  AoBEEMir^rrs 


I 


check  unnecessary  or  excessive  expenditure  and  to  prevent  care- 
lessness which  may  arise  from  the  practical  assurance  that  revenue 
will  be  provided  to  pay  any  expenses  incurred.  The  importance 
of  this  form  of  regulation  is  in  inverse  ratio  to  the  sufficiency  of 
provisions  whereby  the  rewards  of  management  depend  upon  the 
results  of  operation.  If  careful,  economical  and  efficient  opera- 
tion accrues  to  the  benefit  of  the  management  as  well  as  to  the 
community,  then  the  necessity  of  supervision  by  the  public  authori- 
ties is  correspondingly  diminished.  The  need  of  some  .degree  of 
control,  however,  remains  because  it  is  as  impoi-tant  to  the  service 
that  operating  expenditures  should  be  ample  as  it  is  that  they 
should  not  be  excessive. 

Expenditures  for  operation,  maintenance  and  depreciation 
should  have  no  effect  upon  the  return  upon  the  property.  Kegu- 
lation  under  so-called  service  at  cost  agreements  is  not  regulation 
upon  a  "cost  plus"  basis.  In  the  latter  case,  return  depends 
upon  the  amount  expended  while  in  the  former  case  the  amount 
invested  determines  return  and  the  amount  expended  has  no  bear- 
ing. This  is  an  exceedingly  important  distinction,  since  the  two 
principles  bear  no  relation  whatever  to  each  other  and  the  objec- 
tions that  are  urged  against  the  "  cost  plus  "  method  do  not  hold 
as  to  service  at  cost. 

Several  methods  of  the  supervision  of  the  cost  of  operation  are 
possible.  One  involves  the  fixing  of  allowances  for  operating  pur- 
poses based  upon  operating  units  such  as  the  car  mile.  This  method 
has  the  virtue  of  flexibility  insofar  as  it  permits  expansion  of  the 
total  amount  of  service  so  long  as  unit  costs  are  kept  within  the 
stipulated  unit  allowance.  It  does  not,  however,  provide  for 
changes  in  cost  during  the  period  for  which  it  is  fixed,  and  to  th^s 
extent  is  in  itself,  if  strictly  adhered  to,  a  prescription  of  the 
quality  of  the  service,  since  the  effort  of  management  will  natu- 
rally be  exerted  to  keep  the  service  without  the  bounds  of  what  can 
be  paid  for  by  the  allowance  made.  If  these  allowances  be  fixed  bv 
the  terms  of  the  grant  under  which  the  utility  conducts  business, 
the  result  is  the  setting  up  of  standards  of  operating  cost,  apt  to 
prove  insufficient  in  periods  of  increasing  expense  and  too  great 
in  periods  of  decreasing  expense. 


! 


Service  At  Cost  Agreements 


49 


Another  method  provides  for  a  budget  system,  whereby  an  esti- 
mate of  receipts  and  expenses  covering  a  fixed  period  is  submitted 
by  the  utility  for  the  approval  of  the  public  authorities,  who  have 
the  power  to  fix  the  amounts  to  be  expended.  In  these  cases,  the 
objection  that  with  the  total  amount  of  expenditures  fixed  there 
.can  be  no  increase  of  service  to  meet  contingencies  unforeseen  at 
the  time  the  budget  was  adopted,  is  overcome  by  provisions 
whereby  supplementary  budgets  may  from  time  to  time  be  pre- 
sented, which  if  approved  permit  expansion  in  expenditure. 

Still  another  form  of  supervision  provides  for  the  audit  of  all 
expenses  by  the  public  authorities,  who  have  the  power  to  disallow 
or  reduce  items,  and  so  prevent  their  payment  as  a  part  of  the 
cost  of  servica  All  of  these  methods  involve  the  exercise  of  judg- 
ment on  the  part  of  the  regulating  authorities  and  present  oppor- 
tunities for  disagreement,  between  the  management  and  the  regu- 
latory officers. 

Insofar  as  strictly  operating  costs,  such  as  wages,  the  purchase 
of  materials,  and  similar  items  are  concerned,  the  likelihood  of  dis- 
agreement is  not  great.  Such  costs  are  matters  of  record  and  of 
faet,  and  for  this  reason  are  susceptible  of  proof.  The  question 
of  the  maintenance  of  the  property,  both  through  current  repairs 
and  renewals  and  through  the  operation  of  reserve  funds  for  future 
replacements  and  renewals,  is  not  so  easy  of  adjustment.  Here 
judgment  is  the  controlling  factor,  and  electric  railway  practice 
has  not  been  sufficiently  developed  to  permit  the  setting  up  of 
standards  recognized  as  authoritativa  Two  objects  are  sought  to 
be  accomplished  by  maintenance.  First,  the  keeping  of  the  prop- 
erty in  efficient  operating  condition;  second,  the  preservation  of 
the  investment,  by  maintaining  value  either  in  property  or  funds 
to  the  full  value  of  the  investment  One  hundred  per  cent  condi- 
tion is  unnecessary  to  achieve  the  first  object;  100  per  cent  con- 
dition as  represented  either  by  the  physical  property,  or  by 
reserve  is  essential  to  the  second.  As  a  part  of  the  cost  of  service, 
there  must  be  collected  an  amount  sufficient  to  accomplish  this 
purpose.  The  proportion  of  the  amount  that  shall  be  currently 
expended  and  the  proportion  that  shall  be  accrued  for  future 
expenditures  is  a  matter  of  judgment  and  the  difficulties  connected 
with  its  determination  are  many. 


til 


50 


Sekvice  At  Cost  AGBEEMin!rrs 


Sekvice  At  Cost  Agreements 


111 


I 


Among  the  methods  of  determination,  advocated  or  in  practice, 
the  most  prominent  are  first,  the  fixing  of  a  maintenaace  allow- 
ance based  upon  the  operating  unit  of  the  car  mile,  with  the 
accrual  of  the  balance  not  currently  expended  as  reserve  against 
future  renewals  and  replacement,  second,  the  fixing  of  a  percent- 
age of  either  gross  revenues  or  investment  value  to  be  collected 
as  a  cost  of  service  and  apportioned  arbitrarily  between  current 
maintenance  and  reserve,  third,  the  setting  aside  of  arbitrary 
amounts  for  so-called  depreciation  and  the  fixing  of  current  main- 
tenance expenditures  by  the  budget  system.     The  business  of 
supervision  in  respect  to  costs  occasioned  by  maintenance  is  to 
see  that  the  car  rider  pays  his  full  share  of  the  cost  of  the  property 
worn  out  in  his  use,  but  that  he  does  not  pay  more  than  his  share 
for  the  benefit  of  future  car  rider,  while  the  interest  of  the  man- 
agement is  in  the  preservation  of  the  property  value  which  is 
behind  the  investment  it  represents. 

Those  elements  of  the  cost  of  service  represented  by  taxes  and 
public  imposts  are  outside  of  the  control  of  the  enterprise.  Their 
regulation  is  primarily  a  matter  between  the  car  rider  and  the 
general  public.  If  the  community  so  determines,  they  must  be 
coUected  as  a  cost  of  service  without  question  and  consequently 
they  may  be  disregarded  in  the  present  discussion. 

The  supervision  of  charges  against  service  caused  by  payments 
on  account  of  return  to  capital  may  be  based  upon  either  of  two 
general  theories:  First,  that  the  value  upon  which  a  return  shall 
be  allowed  and  the  rate  of  that  return  having  been  fixed,  the  pub- 
lic interest  requires  only  that  any  addition  to  that  value  shall 
receive  the  approval  of  the  public  authorities,  thus  permitting  the 
enterprise  to  make  use  of  any  lawful  method  of  financing  and 
giving  to  it  the  entire  disposal  of  the  return ;  second,  that  strict 
control  and  direction  of  all  the  methods  of  financing,  including 
the  issuance  of  securities,  as  to  their  nature,  the  price  sold,  and 
the  return  thereon,  should  be  exercised  by  the  public  authorities. 
The  advantage  of  the  first  method  of  control  is  the  freedom 
allowed  to  the  enterprise  in  readjusting  its  affairs  to  meet  new 
conditions  caused  by  the  revaluation  of  its  property.  Under  this 
plan  neither  the  amount  nor  the  character  of  the  securities  out- 
standing concerns  the  public.     They  may  be  allowed  to  stand  as 


originally  issued  if  this  be  considered  advisable  or  desirable  and 
readjustment  then  takes  place  in  the  distribution  of  the  total 
return  among  the  various  classes  of  securities  rather  than  in  com- 
plete financial  reorganization  so  as  to  adjust  the  face  value  of 
securities  to  the  value  upon  which  return  is  received.  It  further 
permits,  as  to  new  capital  issues,  the  adoption  of  that  method  of 
financing  which  may  be  to  them  most  attractive. 

The  second  method  has  the  advantage  from  the  standpoint  of 
the  enterprise  of  giving  authority  and  stability  to  its  securities. 
Thai:  they  are  issued  with  the  consent  and  approval  of  the  author- 
ity upon  whom  the  return  depends  undoubtedly  gives  them  a 
better  standing  in  the  financial  market.  Morever,  it  makes  easier 
the  adoption  of  methods  which  gives  flexibility  to  the  rate  of 
return  allowed.  As  has  already  been  pointed  out,  the  rate  at 
which  money  can  be  borrowed  for  any  purpose  is  constantly 
changing.  Under  a  system  of  regulation  by  which  the  rate  of 
return  is  fixed  for  any  considered  period,  variations  in  the  cost 
of  new  capital  must  be  absorlxxl  through  the  sums  paid  to  the 
enterprise  on  account  of  return.  This  is  particularly  important 
as  affecting  charges  against  the  cost  of  money,  such  as  discount 
on  securities.  t 

Unless  these  charges  be  amortized  from  earnings,  they  increase 
the  rate  of  interest  which  must  be  continuously  paid  until  the 
securities  are  retired.  This  must  be  a  prime  factor  in  determin- 
ing the  rate  of  return  allowed,  and  if  absorbed  through  the  allow- 
ance permitted  the  enterprise  should  have  a  material  effect  upon 
the  rate.  Indeed,  it  is  to  be  doubted  whether  any  community 
would  ever  consent  to  a  blanket  rate  of  return  high  enough  to 
both  absorb  discount  on  securities  and  at  the  same  time  afford  a 
sufficient  recompense  for  the  capital  invested. 

Flexibility  in  the  rate  of  return  provided  is  as  important  to 
the  acquisition  of  new  capital  as  is  flexibility  in  the  rate  of  fara 
It  is  provided  either  in  the  interest  rate  or  in  the  price  at  which 
the  securities  are  sold.  The  mere  stipulation  of  a  rate  of  interest 
to  bo  allowed  upon  securities  does  not  mean,  even  if  they  be  dis- 
posed of,  that  the  rate  stipulated  is  the  rate  which  the  enterprise 
must  pay  for  the  money  secured,  since  to  the  extent  that  they  are 
sold  under  par,  the  interest  rate  is  increased. 


m 


Sebvice  At  Cost  Agreemetnts 


Service  At  Cost  Aqreeme'xts 


5S 


It  is^  therefore,  important  that  security  issues  to  provide  new 
capital  should  conform  as  to  interest  rate  and  terms  with  the 
conditions  of  the  money  market  at  the  time  of  their  sale  in  order 
that  the  funds  may  be  acquired  at  the  lowest  cost.  The  nature 
of  the  securities  which  command  the  largest  sale  sometimes 
change  with  the  changing  conditions  in  the  financial  world,  and 
it  is  impossible  to  set  hard  and  fast  rules.  These  are  some  of 
the  reasons  why  the  close  regulation  of  the  issuances  of  securities 
is  urged  as  a  measure  for  the  protection  of  the  investment  as  well 
as  in  the  interest  of  the  investment.  It  is  to  be  again  pointed 
out  that  in  the  matter  of  this  kind  of  r^ation  the  question  of 
judgment  enters  to  a  large  extent. 

Wherever  r^ation  rests  upon  judgment  there  is  opportunity 
for  disagreement  and  disputa  The  regulatory  authorities, 
whether  they  be  officers  of  the  State  or  officers  of  the  community, 
must  necessarily  act  with  a  bias  towards  the  public  standpoint. 
Hence,  the  necessity  in  the  interest  of  the  enterprise,  that 
there  should  be  some  form  of  appeal  from  their  decision. 
They  are  not  and  should  not  be  judicial  officers.  They  must,  to 
a  certain  extent  at  least,  be  partisans,  and  with  such  almost 
akolute  control  over  the  important  question  of  service  and  finance, 
might  very  well,  through  unreasonable  requirements,  destroy  both 
the  integrity  of  the  investment  and  prevent  a  fair  and  reasonable 
return.  It  is  essential,  therefore,  that  appeal  either  to  arbitra- 
tion or  to  some  judicial  tribunal  be  provided.  Without  such 
provision,  the  enterprise  is  completely  at  the  mercy  of  the  regu- 
latory officers,  who  are  charged  with  sufficient  power  to  wreck 
the  enterprise,  either  through  unwise  decision  ox  with  deliberate 
intent. 

Conclusions 
^  Management  as  distinct  from,  yet  attached  ta,  capital  is  essen- 
Ual  ta  a  heal  transportation  enterprise  and  can  only  he  seawred 
if  it  be  aitacted  by  the  hope  of  pecuniary  profit. 

The  reward  for  management  slwuld  depend  upon  the  efficiency 
and  economy  exercised  by  U.  If  profits  be  considered  tJie  prod- 
uct of  good  management,  they  should  be  shared  as  between  the 
car  rider  and  management  and  not  with  the  community. 


Begulation  is  distinct  from  management,  and  when  it  attempts 
to  perforin  the  functions  of  management  assumes  responsibility 
to  the  degree  that  it  takes  away  authority. 

The  province  of  regulation  is  to  prescribe  service  and  to  see 
that  this  prescription  is  carried  mot. 

The  right  of  com^mimities  to  prescribe  service  is  limited  only 
by  the  ability  of  the  enterprise  to  collect  the  cost  of  the  service  so 
prescribed. 

Right  of  appeal  from  orders  of  regulatory  authorities,  eUher 
through  arbitration  or  to  the  courts,  is  essential  to  tfie  protection 
of  capital. 


CHAPTER  NINE 

•  

Existing  Plans  Considered 

Six  Esaential  Principles  Governing  Relations  Between  Communities  and 
Private  Enterprise  Engaged  in  Local  Transportation  Service  —  Extent  to 
Which  They  Are  Applied  in  Existing  or  Proposed  Service  At  Cost  Plans  — 
Inclusive  and  Exclusive  Rights  —  Indeterminate  Permits  —  Provisions  for 
Proper  Maintenance  —  Assurance  of  Return  —  Flexibility  in  Rate  of  Return 
—  Reward  for  Management. 

In  the  preceding  pages,  certain  fundamentals  have  been  out- 
lined as  being  essential  to  the  protection  of  capital  invested  in 
local  transportation  enterprises  and  to  the  attraction  of  money 
into  this  character  of  public  service.  It  will  be  of  interest  to  set 
up  these  principles  one  by  one  and  apply  them  to  existing  or  pro- 
posed service  at  cost  agreements  in  order  to  ascertain  the  extent  to 
which  they  are  in  actual  practice  in  the  regulation  of  the  relations 
between  communities  and  local  transportation  utilities  as  provided 
by  such  agreements. 

The  first  of  the  principles  may  be  thus  stated  — - 

The  Protection  of  Capital  Invested  in  Local  Transporta- 
tion Requires  that  it  be  Given  an  Inclusive  and  Exclusive 
Bight  to  Furnish  a  Local  Transportation  System  by  What- 
ever may  be  the  Best  Means. 

No  recognition  of  this  principle  is  to  be  found  in  any  of  the 
agreements  or  plans  which  we  are  discussing.  These  franchises 
are  not  inclusive,  by  which  is  meant  that  they  provide  for  but 


54 


Service  At  Cost  AaKEEMirirrs 


cme  form  of  transportation,  very  largely  for  the  reason  that 
up  to  the  present  time  there  has  been  no  adequate  realization  of 
the  importance  of  the  motor  vehicle's  part  in  local  transportation, 
nor  of  the  fact  that  this  part  to  be  really  effective  must  be  that  of 
an  auxiliary  and  adjunct  to  the  electric  railway.  Only  in  the 
Montreal  franchise  is  recognition  given  to  the  motor  bus.  Here  it 
is  required  of  the  company  that  it  shall  operate  buses  at  the 
direction  of  the  Montreal  Tramway  Commission,  but  only  if  such 
operation  entails  no  burden  upon  the  cost  of  the  service.  In  other 
words,  bus  routes  and  lines  established  must  be  self-supporting. 
Other  agreements  are  silent  as  to  transportation  other  than  that 
upon  rails,  although  in  most  of  them  the  possibility  of  a  change 
in  motive  power  is  recognized  by  provisions  which  empower  the 
communities  to  consent  to  the  use  of  motive  power  other  than 
electricity. 

The  object  of  both  the  Chicago  and  Philadelphia  agreements 
was  to  secure  for  the  respective  cities  a  complete  and  unified 
"system  "  of  local  transportation,  for  which  purpose  the  operation 
of  rapid  transit  lines,  both  on  elevated  structures  and  in  subways 
to  be  built  with  the  city's  money  and  owned  by  the  city,  was  pro- 
vided for,  while  a  similar  object  was  set  forth  in  the  Dallas  fran-^ 
chise,  yet  in  no  case  was  it  considered  of  importance  to  include  in 
the  basic  instrument  by  which  a  unified  system  was  to  be  secured 
the  operation  of  motor  vehicles.  Indeed,  there  are  still  many 
States  in  which  motor  buses  have  not  yet  been  formally  recognized 
as  conmion  carriers,  subject  to  the  statutes  that  control  common 
carriers.  The  danger  of  this  omission  in  franchises,  as  it  affects 
investnient,  is  obvious.  Controlled,  regulated  and  restricted  on 
the  ground  that  it  is  properly  a  non-competitive  enterprise,  the 
street  railway  may  be,  and  often  is,  faced  with  a  form  of  competi- 
tion peculiai'ly  unfair  and  harmful  because  it  is  not  subject  to 
the  same  control,  regulation  and  restriction. 

It  is  perhaps  because  of  lack  of  complete  control  over  their  own 
streets  that  more  communities  do  not  grant  full  rights  to  operate 
street  railway  systems,  but  confine  these  rights  to  certain  specified 
lines  and  routes.  Many  State  Constitutions  and  more  State  laws 
require  the  consent  of  abutting  property  owners  to  the  construction 


Service  At  Cost  AnREEMirNTs 


55 


of  street  railway  tracks  in  their  highways,  thus  removing  from  the 
community  the  exclusive  right  to  say  where  and  when  street  rail- 
way lines  shall  be  built.    Moreover,  the  idea  or  regulation  through 
competition  is  still  alive,  and  the  possibility  of  competing  lines 
built  and  operated  by  the  city,  or  by  an  enterprise  other  than 
that  to  which  the  franchise  has  been  extended,  is  not  lost  sight  of. 
The  right  of  the  city  to  build  and  operate  such  lines  is  especially 
reserved  in  the  Youngstown  franchise,  while  in  Cleveland  it  is 
provided  that  the  City  may,  within  a  certain  prescribed  district, 
compel  the  company  to  permit  the  use  of  its  tracks  by  other  comr 
panics.     The  Massachusetts  Acts  do  not  extend  the  rights  of  the 
companies.    The  two  Denver  ordinances  aim  simply  to  provide  an 
automatic  form  of  rate  regulation  and  other  terms  of  the  Com- 
pany's franchises  are  unaffected  thereby.     In  Minneapolis,  Cin- 
cinnati, Montreal  and  Westerville,  the  grant  is  for  particular 
route  and  streets  to  be  added  to  at  the  pleasure  of  the  City.  Tn 
Memphis,  service  at  cost  is  provided  for  by  an  order  of  the  Stato 
Utilities  Commission,  which  does  not  add  to  the  franchise  rights 
of  the    Company. 

The  Protection  of  Capital  Invested  in  Local  Transporta- 
tion Eequires  that  unless  Provision  be  made  for  the  Amort- 
^*io»  of  the  Difference  Between  its  "  Scrap  "  Value  and 
its  Value  as  a  Going  Enterprise,  its  Right  to  Conduct  Busi- 
ness shall  be  Terminable  only  upon  Purchase  by  the  Com- 
munity, or  by  a  Licensee  of  the  Community. 

All  Massachusetts  street  railways  operate  under  a  form  of 
indeterminate  permit,  not  affected  by  the  acts  which  are  under' 
discussion.  The  Dallas  franchise  is  terminable  only  upon  pur- 
chase by  the  City  or  a  licensee  of  the  City,  while  the  proposed 
Chicago  franchise  was  terminable  upon  City  purchase  alone.  Tha 
proposed  Philadelphia  agreement  was  for  fifty  years  and  that 
effective  in  Montreal  for  thirty-five  years.  Under  the  Ohio  law, 
no  franchise  may  be  granted  for  a  longer  period  than  twenty-five 
years  and  the  Cleveland,  Cincinnati,  Youngstown  and  Wester- 
ville grants  were  accordingly  for  this  term.  The  proposed  Min- 
neapolis franchise  was  also  a  twenty-five  year  grant,  while  in 
Denver  and  Memphis  no  new  grants  were  involved. 


56 


Sekvice  At  Cost  AoREEMinn^ 


In  all  of  thjese  term  franchises,  with  the  exception  of  that  effect- 
ive in  Montreal,  some  provision  is  made  for  the  amortization  of 
investment  The  provisions  of  the  Cleveland,  Youngstown  and 
Westerville  grants  are  much  alike,  and  provide  that  when  the  grant 
has  less  than  fifteen  years  to  run,  which  makes  them,  unless 
renewed,  effective  in  their  most  essential  features  for  ten  years 
only,  control  of  rates  and  semce,  as  well  as  extensions,  pass  from 
the  community  to  the  company,  which  is  permitted  to  charge  the 
highest  rate  permitted  by  the  grant  in  order  that  the  difference 
between  Capital  Value  as  stated  in  the  grant  and  salvage  value 
may  be  amortized  in  the  remaining  fifteen  years.  The  consequence 
is  that  the  grant  is  no  sooner  in  effect  than  negotiations  for  its 
renewal  are  under  way,  with  resulting  disturbance. 

While  the  Cincinnati  grant  does  not  contain  provisions  of  the 
same  character  as  those  of  the  other  Ohio  franchises,  it  does  pro- 
vide for  sinking  funds,  to  take  care  both  of  initial  capital  and  such 
added  capital  as  may  be  raised  from  the  sale  of  bonds.  The  rejected 
Philadelphia  franchise  had  similar  provisions,  both  as  to  the 
property  in  the  unified  system  owned  by  the  company  and  that 
owned  by  the  city.  In  the  later  case,  however,  the  provisions  were 
not  as  stringent. 

In  Minneapolis,  an  amortization  fund  was  created,  to  be  accu- 
mulated by  the  payment  into  it  of  one-half  of  one  per  centum  of 
capital  value  each  year,  until  an  amount,  defined  by  the  grant  as 
the  intangible  value  of  the  property  was  equalled.  Thereafter  the 
amount  to  be  paid  into  the  fund  was  to  be  fixed  by  the  city 
council. 

The  third  of  the  principles  — 


The  Proteetioii  of  the  Ihvestmeiiit  from  Attrition,  i.  e., 
its  Wasting  Away  in  the  Public  Service  Without  Replace- 
ment,  Requires  Adequate  Provision  from  Revenue  Both  for 
Maintenance  and  for  Reserves  for  Depreciation. 

In  Cleveland  and  Youngstown,  a  maintenance,  depreciation 
and  renewal  fund,  is  accumulated  from  a  monthly  allowance 
based  on  the  revenue  car  mileage  of  the  system  for  the  month, 
and  changing  with  the  period  of  the  year.  Such  of  the  Fund  as 
is  not  expended  for  current  maintenance  goes  into  a  reserve  for 


Service  At  Cost  Agkebmej^s 


67 


renewals  and  replacements,  to  be  expended  only  with  the  approval 
of  the  city  authorities.  No  special  provision  is  made  for  depre- 
ciation, and  as  a  matter  of  record  there  has  during  the  life  of  the 
Cleveland  grant,  either  been  a  deficit  in  the  fund,  or  an 
inconsiderable  balance. 

In  Cincinnati,  the  amount  to  be  exijcnded  for  current  main- 
tenance, repairs  and  renewals  is  fixed  in  the  annual  budget  and  is 
subject  to  the  approval  of  the  city  authorities.  In  addition  there 
is  accumulated  a  special  fund  to  provide  for  depreciation.  For 
the  first  five  years  of  the  grant,  the  amount  paid  thereinto,  shall 
equal  that  formerly  set  aside  by  the  company.  After  five  years 
the  amount  shall  be  that  fixed  by  the  State  Public  Utilities  Com- 
mission.  The  fund  is  to  be  used  exclusively  for  replacements  and 
renewals.  In  the  event  of  purchase  by  the  city  the  amount  then 
in  the  Depreciation  Fund  shall  be  deducted  from  the  purchase 
price  and  becomes  the  property  of  the  company. 

By  the  terms  of  the  Boston  Elevated  Act,  the  trustees  operat- 
ing the  property  are  enjoined  to  "  make  such  provision  for  depre- 
ciation, obsolescence  and  rehabilitation,  that,  upon  the  expiration 
of  the  period  of  public  management  and  operation,  the  property 
shall  be  in  good  operating  condition."  Depreciation  and  obso- 
lescence are  specified  in  the  Act  as  items  in  the  cost  of  service,  but 
the  amount  to  be  set  aside  therefor  is  left  to  the  judgment  of  the 
trustees.  It  wiU  be  noted  that  the  language  of  the  Act,  provides 
for  nothing  more  than  the  maintenance  of  good  "  operating " 
condition,  something  apart  from  the  maintenance  of  full  invest- 
ment value,  although  by  the  practice  in  Massachusetts  investment 
value  is  recognized  as  that  upon  which  a  retui-n  shall  be  paid. 

In  the  act  providing  for  cost  of  service  for  Massachusetts  elec- 
tric railways  other  than  the  Boston  Elevated  and  the  Massachusetts 
Eastern  current  maintenance  is  included  as  a  part  of  the  cost  of 
service  and,  in  addition,  it  is  provided  that  there  shall  be  set  aside 
such  allowance  for  depreciation,  obsolescence  and  losses  in  respect 
to  property  sold,  destroyed  or  abandoned  as  the  Commission  shall 
from  time  to  time  decide  upon. 

In  Montreal  payments  on  account  of  "  maintenance,  renewals, 
replacements  and  substitutions  "  are  included  as  items  in  the  cost 


V  i 


58 


Sebvice  At  Cost  Agbeemitnts 


of  service.  The  allowance  is  fixed  on  the  basis  of  revemie  car 
miles  operated  and  paid  into  the  maintenance  and  renewals  fund, 
from  which  is  paid  the  cost  of  renewals  and  replacements.  Money 
is  held  in  the  fund  until  expended  for  renewals  and  replacements 
or  expended  for  additions,  extensions  and  permanent  improve- 
ments, which  when  so  paid  for  are  not  added  to  Capital  Value. 
The  grant  provides  that  the  Tramway  Commission  shall  make 
such  allowance  as  will  keep  the  maintenance  and  renewals  fund  at 
$500,000  or  more,  the  initial  value  of  the  property  being  fixed  at 
$36,286,295. 

In  the  Eastern  Massachusetts  Act,  maintenance  on  the  one 
hand,  and  depreciation,  obsolescence,  rehabilitation  and  losses  in 
respect  to  property  sold,  are  made  separate  items  in  the  cost  of 
service,  the  allowance  for  each  to  be  such  as  will,  in  the  judgment 
of  the  trustees,  be  sufficient. 

"  Maintenanco,  current  and  deferred  "  are  made  items  in  the 
cost  of  service  by. the  provisions  of  the  Westerville  grant,  the 
determination  of  the  amount  to  set  aside  for  the  purpose  being 
left  to  the  company  subject  to  the  approval  of  the  commission. 

In  the  Dallas  franchise  the  provisions  for  maintenance  and 
depreciation  reserves  are  elaborate.  Current  maintenance  is  pro- 
vided for  as  an  operating  expense.  In  addition  a  repairs,  main- 
tenance and  depreciation  reserve  is  set  up.  When  the  highest  rate 
of  fare  permitted  by  the  grant  is  in  effect,  it  is  provided  that  this 
fund  shall  equal  six  per  cent  of  property  value.  When  any  lower 
rate  of  fare  is  in  effect  the  normal  amount  shall  be  ten  per  centum 
of  property  value.  Ten  per  cent  of  monthly  gross  receipts  are  to 
be  paid  into  the  fund  as  the  second  major  item  of  cost  of  service, 
and  in  addition,  there  shall  be  paid  into  the  fund,  such  an  amount 
of  the  gross  receipts  remaining  after  the  payment  of  other  specified 
items  in  the  cost  of  service,  as  will  bring  tlie  total  for  the  year  up 
to  eighteen  per  cent  of  annual  gross  receipts.  Such  payments 
shall  be  cumulative  until  deficits  shall  be  made  good.  Payments 
into  the  reserve  cease  when  the  normal  amount  is  reached.  The 
company  shall  receive  no  more  than  its  minimum  return  \mtil  the 
amount  in  the  reserve  shall  be  at  normal.  This  grant  is  peculiar 
in  that  it  makes  the  amount  of  depreciation  depend  upon  the  fare 


Service  At  Cost  Agbeemet^ts 


59 


m  effect,  although  wear,  tear  and  obsolescence  is  in  no  way  depend- 
ent upon  rate  of  fare. 

In  the  order  of  the  State  Public  Utilities  Commission  affecting 
Memphis   ordinary   maintenance   is   included   as;   an  operating 
expense.     In  addition,  a  Eenewal  and  Keplacement  Keserve  is 
created  to  be  used  "  for  the  sole  purpose  of  providing  renewals  and 
replacements  (other  than  ordinary  maintenance)  due  to  ordinary 
depreciation,  obsolescence  or  abandonment."    Expenditures  from 
the  fund  are  under  the  direction  of  the  Utilities  Commission.  The 
fund  was  started  with  the  amount  that  had  been  accumulated  by 
the  company  for  depreciation  previous  to  the  taking  effect  of  the 
order,  and  there  is  paid  into  it  three  per  cent  per  annum  of  the 
value  of  "  depreciable ''  property  (stated  to  be  $7,600,000  in  a 
total  Initial  Value  of  $11,846,034)  until  there  shall  be  aceunui- 
lated  $500,000.     Thereafter  when  the  balance  in  the  fund  is 
between  $300,000  and  $500,000,  the  same  rate  shall  prevail ;  when 
the  balance  is  more  than  $500,000,  it  shall  be  reduced  to  two  per 
cent,  and  when  it  is  less  than  $300,000,  the  rate  shall  be  increased 
to  four  per  cent 

In  the  defeated  Chicago  ordinance,  the  following  distinction  as 
between  maintenance  and  repairs,  and  renewals  is  established  by 
the  language  of  the  grant :    "  Kenewals  are  hereby  defined  to  be 
the  replacement  of  any  principal  part  of  the  local  transportation 
system,  or  its  equipment  or  appurtenances  (including  pavement) 
or  subways."    The  trustees  are  enjoined  to  classify  expenditures  as 
between  maintenance  and  repairs,  and  renewals.  An  amount  equal 
to  six  per  cent  of  gross  receipts  shall  be  spent  for  maintenance  and 
repairs,  or  if  not  so  spent  shall  be  set  aside  in  a  maintenance  and 
repairs  fund  to  be  later  so  spent.     In  addition,  there  shall  be  set 
aside  each  month,  an  amount  equal  to  eight  per  cent  of  the  gross 
receipts  of  the  previous  month,  to  be  accumulated  in  a  Renewals 
and  Depreciation  Fund.    From  this  latter  fund  shall  be  paid  the 
cost  of  all  renewals,  except  such  as  are  charged  to  Capital  Account, 
and  the  balance  not  expended  shall  constitute  the  reserve  for  depre- 
ciation.    The  eight  per  cent  allowance  for  the  fund  may  be 
increased  when  in  the  judgment  of  the  trustees  this  seems  desirable 
and  necessary. 


( 


(I 


60 


Service  At  Cost  Aoreemitxts 


1^ 


i 


I 


In  the  rejected  Philadelphia  ordinance  the  amount  to  be 
expended  for  maintenance  was  left  to  the  judgment  of  the  com- 
pany, subject  to  review  by  the  Supervising  Board.  Three  distinct 
depreciation  funds  were  also  established,  one  to  cover  the  property 
of  the  city,  one  the  property  of  the  company  used  in  connection 
with  the  operation  of  the  city  system  (Note:  This  property  was 
eventually  to  be  purchased  by  the  city),  and  the  third,  the 
remainder  of  the  Company's  property.  The  amount  to  be  sot  aside 
for  the  three  funds  was  left  to  the  judgment  of  the  Supervising 
Board,  except  that  the  accumulation  of  the  fund  to  cover  the  city's 
property  was  not  to  begin  until  ten  years  after  the  date  when  the 
agreement  became  effective.  The  Company's  Fund  was  to  be 
applied  to  payments  for  repairs,  replacements  and  renewals  other 
than  those  paid  directly  out  of  gross  revenues,  expenditures  from 
the  fund  to  be  approved  by  the  supervising  board. 

In  the  rejected  Denver  Service  at  Cost  Ordinance,  the  amount  to 
be  expended  for  current  maintenance  was  to  be  fixed  by  the  com- 
pany in  the  annual  budget  subject  to  the  approval  of  the  city.  In 
addition  a  Renowals  and  Depreciation  Reserve  Fund,  to  provide  for 
"the  replacement  and  renewal  of  tracks,  cars,  equipment,  build- 
ings and  plant  which  hereafter  shall  become  worn  out,  obsolete  or 
useless,  and  for  the  general  depreciation  of  the  property,"  was  to 
be  provided,  through  sums  taken  from  the  revenues  of  the  com- 
pany. The  amount  to  be  set  aside  was  to  be  "  adequate  and  rea- 
sonable "  and  determined  by  the  Board  of  Tramway  Control.  As 
a  measure  of  adequacy  the  ordinance  provided  that  for  the  initial 
value  of  $20,867,750,  a  monthly  allowance  of  $37,500,  should  be 
deemed  sufficient.  In  the  Denver  Elastic  Six-cent  fare  ordinance 
there  were  no  provisions. 

In  the  rejected  Minneapolis  ordinance,  repairs,  maintenance, 
renewals  and  depreciation  were  all  to  be  taken  care  of  through  the 
operation  of  the  Repair,  Maintenance,  Renewal  and  Depreciation 
Fund.  This  was  to  be  provided  by  the  setting  aside  each  month 
of  one-twelfth  of  2.75  per  cent  of  Capital  Value,  the  rate  to  be 
increased  or  decreased  as  the  city  council  might  determine.  To  tbe 
fund,  there  was  also  to  be  added  amounts  received  from  the  sale  of 
material  or  property  sold,  and  from  it  was  to  be  paid  the  cost  of 


Service  At  Cost  AoREEME'^fTS 


61 


maintaining  the  property,  and  of  renewals  and  replacements  other 
than  those  charged  to  Capital  Account.  The  balance  not  so  used 
was  to  be  maintained  as  a  reserve. 

The  fourth  of  the  principles  — 

Assurance  of  Return  is  Necessary  to  Attract  Capital  into 
Local  Transportation  Enterprises  Where  Profits  are  Limited, 
and  has  a  Material  Effect  upon  the  Bate  of  Betum  Necessary. 

In  the  cost  of  service  plans  under  consideration  return  is  assured 
in  greatly  varying  degrees.    Even  the  provisions  for  flexible  fares 
differ  as  to  the  assurance  given.     Thus  while  in  Youngstown, 
Cincinnati,  Boston,  Massachusetts  General  Act,  Montreal,  Eastern 
Massachusetts,  Memphis,  Chicago,  Denver  and  Minneapolis,  fares 
may  be  indeffnitely  increased  to  meet  the  cost  of  service,  in  Cleve- 
land, Westerville  and  Dallas,  a  top  limit  is  fixed  beyond  which  fares 
may  not  be  increased  without  an  amendment  to  the  ordinance, 
and  in  Philadelphia  the  grant  provided  merely  that  the  Supervis- 
ing Board  should,  when  a  fare  increase  was  necessary,  file  a  tariff 
with  the  State  Public  Service  Commission,  which  should  then  act 
as  in  all  similar  cases.     The  importance  of  assuring  return  by 
provisions  which  permit  a  rate  of  fare  sufficiently  high  to  cover 
the  cost  of  service  is  shown*  in  the  case  of  botli  Cleveland  and 
Dallas,  in  the  former  of  which  it  was  necessary  to  amend  the 
grant  to  permit  a  fare  high  enough,  and  in  the  latter  of  which 
a  substantial  deficit  in  the  cost  of  service  has  been  created  because 
there  has  been  no  amendment  of  the  grant,  and  the  highest  fare 
provided  is  insufficient. 

Even  with  the  possible  rate  of  fare  unlimited,  there  remains 
the  danger  that  the  community,  having  the  right  to  prescribe  serv- 
ice and  require  extensions,  betterments  and  permanent  improve- 
ments, will  impose  a  burden  of  cost  upon  the  enterprise,  which 
cannot  be  taken  care  of,  under  any  possible  rate  of  fare.  In  the 
plans  effective  in  Cleveland,  Youngstown,  Cincinnati,  the  Mas- 
sachusetts General  Act,  Montreal,  Westerville,  Dallas,  Phila- 
delphia and  Denver,  appeal  from  an  order  requiring  service 
is  provided  for,  either  to  the  courts  or  to  a  board  of  arbitration 
erected  according  to  the  provisions  of  the  agreement.  In  those 
5 


I'll 


02 


Service  At  Cost  Aoreemkxts 


Seeviok  At  Cost  Agreements 


m 


\ 


provided  for  Boston,   the  Massachusetts  Eastern,   Chicago  and 
Minneapolis,  no  such  provisions  arc  included. 

Direct  guarantee  of  return  is  made  by  the  provisions  of  the  Bos- 
ton Elevated  Act,  where  if  there  be  a  deficit  in  the  cost  of  service, 
it  is  made  good  from  the  State  tretisuiy,  and  an  assessment  to  cover 
the  amount  is  made  against  the  communities  served  by  the  com- 
pany, the  funds  thus  advanced  to  be  repaid  when  the  revenue  of  the 
company  warrants.  A  similar  provision  as  to  a  portion  of  the 
new  capital  raised  for  rehabilitation  is  present  in  the  Eastern 
Massachusetts  Act,  while  the  rejected  Minncaix)lis  franchise  pro- 
vided, as  to  new  capital,  that  the  city  might  either  make  direct 
loans  to  the  company  or  guarantee  the  payment  of  interest  on 
and  principal  of  securities  issued  with  the  city's  approval.  These 
are  the  only  sei-vice  at  cost  plans  in  which  provision  is  made  for 
putting  the  credit  of  the  city  behind  the  securities  of  the  company 
or  assuring  return  to  those  who  loan  their  money  for  this  public 
service. 

Direct  contributions  by  communities  to  the  cost  of  service 
are  possible  in  Massachusetts,  lK>th  under  the  provisions  of  the 
Massachusetts  Eastern  Act.  and  under  a  general  statute  which 
provides  that  communities  desiring  to  do  so  may  levy  taxes  for 
the  purposes  of  raising  contributions  to  the  cost  of  service  in  order 
to  either  reduce  fares  or  to  prevent  an  increase  therein.  In  no 
other  case  are  there  provisions  for  public  contributions,  although 
in  the  rejected  Philadelphia  agreement  the  city  reserved  the  right 
to  waive  rental  charges  upon  the  subway  and  other  facilities  fur- 
nished by  it,  on  the  theory  that  it  could  properly  determine  what 
proportion  of  the  interest  and  sinking  fund  charges  should  be 
borne  by  the  taxpayer  and  what  proportion  by  the  car  rider. 

In  the  matter  of  imposts  and  taxes,  the  relief  afforded  to  the 
Eastern  Massachusetts  Street  Railway  Company  by  the  Cost  of 
Service  Act,  which  provided  that  the  cx>mpany  should  be  relieved 
from  the  construction  and  maintenance  of  streets,  bridges  and 
structures  in  connection  therewith  and  from  obligations  in  con- 
nection with  the  abolition  of  grade  crossings  and  the  underground- 
ing  of  wires,  has  been  further  extended  by  an  Act  passed  in  1920, 
which  relieves  for  a  period  of  two  years  all  street  railway  com- 
panies from  payment  of  the  so-called  Excise  Tax  which  was  in 


lieu  of  payments  on  account  of  highway  maintenance.    The  Cleve- 
land franchise  relieved  th©  company  of  the  car  license  formerly 
paid,  and  of  its  obligation  to  repave  streets,  although  it  is  still 
required  to  maintain  pavement  between  its  tracks  and  one  foot 
outside  thereof.     Cincinnati  collects  a  "  gross  earnings  "  tax  fixed 
at  $350,000  a  year,  which  is  in  lieu  of  all  paving  taxes  and  assess- 
ments.    The  Montreal  franchise  continues  the  use  of  the  trans- 
portation utility  as  a  collector  of  revenue  for  public  purposes. 
Practically  all  of  the  former  taxes  are  retained,  and  the  city  not 
only  collects  a  rental  of  $500,000  a  year  for  the  use  of  its  streets, 
but  in  addition  appropriates  for  its  own  use  30  per  cent,  of  the 
profits  arising  from  operation.    The  Westerville  franchise  neither 
waived  nor  added  to  the  taxes  and  imposts  formerly  paid  by  the 
company.     In  Dallas  the  company  was  relieved  by  its  franchise 
of  the  payment  of  all  taxes  except  ad  valorem  taxes  and  special 
assessments  for  public  improvements.     Its  obligation  to  pave, 
repave  and  maintain  pavement  between  its  tracks  and  two  feet 
outside  was  continued.     The  Memphis  order  did  not  affect  taxes 
or  imposts.     The  rejected  Chicago  ordinance  relieved  the  com- 
pany of  its  obligation  to  clean  and  sprinkle  streets  whenever  the 
cost  of  so  doing  necessitated  an  increase  in  fares.    All  other  obliga- 
tions were  retained.     The  rejected  Philadelphia  agreement  pro- 
vided for  the  payment  of  a  lump  sum  annually    (starting  at 
$500,000  for  the  first  10  years  and  ending  with  $700,000  after 
30  years)  in  lieu  of  all  obligations  on  account  of  paving,  repav- 
ing,  the  maintenance  of  paving,  snow  and  ice  removal  and  all 
licenses.    No  provisions  for  waiving  this  charge  were  made.    The 
Denver  Service  at  Cost  Ordinance  relieved  the  company  of  the 
payment  of  a  former  franchise  tax,  amounting  to  $60,000  a  year, 
and  from  its  obligation  to  pave,  repave,  maintain  pavement,  con- 
struct, reconstruct,  maintain  or  improve  bridges,  viaducts  and  sub- 
ways, except  as  to  pavement  or  structures  removed  or  damaged  by 
it.     The  rejected  Minneapolis  franchise  permitted  the  city,  in 
order  to  reduce  or  to  prevent  an  increase  in  fare,  to  waive  require- 
ments as  to  paving  construction  and  maintenance,  street  cleaning, 
sprinkling  and  oiling. 


t 


I     s 


64 


Service  At  Cost  Aobeemsnts 


1 


It 


li 


The  fifth  of  the  principles  — 

In  Order  to  Meet  the  Changing  Cost  of  Capital  the  Rate 
of  Betiim  in  Local  Transportation  Enterprise  Should  be 
Flexible. 

In  the  first  of  the  cost  of  service  agreements,  that  in  effect  in 
Cleveland,  the  only  flexibility  of  return  provided  was  that  upon 
money  obtained  through  the  sale  of  bonds.  When  bonds  are  re- 
funded it  is  provided  that  the  return  allowed  shall  cover  the  rate 
of  interest  provided  by  the  issue,  plus  such  amount  as  will  take 
care  of  the  discount  if  they  be  sold  at  a  discount,  the  total  rate  of 
return  not  to  exceed  6  per  cent.  In  the  case  of  stock  and  floating 
and  other  debt,  the  rate  of  return  was  originally  fixed  at  6  per 
cent  Because  it  proved  to  be  impossible,  under  financial  conditions 
existing  after  the  war,  to  secure  new  capital  at  this  rate,  the  ques- 
tion was  in  1919  submitted  to  arbitration,  and  on  the  recommenda- 
tion of  the  Arbitration  Board  the  rate  was  increased  to  7  per 
cent,  by  an  amendment  to  the  franchise.  The  Youngstown  agree- 
ment provides  for  a  7  per  cent,  return  upon  Initial  Capital,  and 
upon  additional  capital  the  rate  fixed  in  the  issue  of  stocks, 
bonds  or  other  evidences  of  indebtedness  through  which  the  new 
capital  is  secured,  such  issues  being  subject  to  the  approval  of  the 
city  and  the  rate  to  be  no  higher  than  the  lowest  at  which  the 
money  may  be  obtained.  In  the  Cincinnati  grant  no  raJte  of  return 
for  Initial  Capital  is  provided,  provision  being  made  for  certain 
specified  amounts.  Securities  issued  after  the  taking  effect  of  the 
grant  «hall,  as  to  character,  form,  the  interest  thereon,  and  the 
price  at  which  sold,  be  subject  to  the  approval  of  the  city.  The 
Boston  Elevated  Act  provides  for  a  fixed  return,  beginning  with 
the  taking  effect  of  the  grant  at  5  pr  cent,  and  ending,  after 
four  years,  at  6  per  cent,  upon  common  stock.  Upon  bonds  and 
preferred  stock,  the  return  is  to  be  that  fixed  in  the  issue,  the 
State  Trustees  having  the  power  to  authorize  for  the  company  such 
issues.  Upon  a  special  issue  of  preferred  stock  sold  to  provide 
money  for  rehabilitation,  the  rate  fixed  at  7  per  cent.  Both  the 
Massachusetts  Greneral  Act  and  that  applying  to  the  Eastern  Ma-s- 
sachusetts  Street  Railway  Company  have  provisions  as  to  rate  of 
return  similar  to  that  of  the  Boston  Elevated  Act,  except  that  the 


Service  At  Cost  Ageeemfjn'ts 


05 


rate  of  return  upon  common  stock  is  fixed  at  6  per  cent,  from 
the  time  the  acts  become  effective.    The  Montreal  franchise,  while 
providing  additional  return  through  an  "  operating  profit "  and 
by  the  division  of  surplus  receipts,  fixes  the  normal  return  upon 
all  capital,  except  that  obtained  during  the  war  and  for  two  years 
aftei-wards,  at  6  per  cent.    Upon  the  latter  a  7  per  cent  return  is 
allowed.     While  there  is  no  flexibility  of  return  provided  for  in 
the  Westerville  grant,   the  difference  in  the  cost  of  money  at 
different  times  and  under  different  circumstances  is  recognized. 
Thus,  the  rate  upon  Initial  Capital  is  fixed  at  6  per  cent.,  upon 
New  Capital  at  8  per  cent.,  and  upon  capital  to  be  expended  in 
a  certain  village  at  15  per  cent.     In  Dallas,  the  rate  of  return 
changes  not  with  the  cost  of  money  but  with  the  rate  of  fare  in 
effect,  varying  from  7  per  cent.,  when  tickets  are  sold  at  the  rate 
of  22  for  $1,  to  9  per  cent  when  they  are  sold  at  eight  for  25  cents. 
In  Memphis,  the  rate  of  return  is  flexible  between  a  lower  limit  of 
61/^  per  cent,  and  an  upper  limit  of  7%  per  cent,  but  here  again 
the  flexibility  is  a  device  to  secure  managerial  efficiency  and  the 
rate  depends  upon  the  condition  of  the  Fare  Index  Fund,  and  not 
upon  the  cost  of  Capital.    In  the  defeated  Chicago  ordinance,  the 
return  upon  Initial  Capital  was  fixed.    For  new  securities  issued, 
the  return  was  to  be  fixed  by  the  trustees  for  each  issue.    The  same 
provisions  were  included  in  the  Philadelphia  agreement,  except 
that  new  securities  were  to  be  issued  by  the  company  with  the 
approval  of  the  city.     In  the  Denver  Service  at  Cost  ordinance, 
the  return  was  fixed  by  the  ordinance,  increasing,  in  a  period 
of  somewhat  less  than  two  years,  from  51/^  to  a  7  per  cent 
rate    with     additional     allowances    depending    upon    the    rate 
of  fare  in  effect     The  proposed  Denver  Elastic  Six-cent  Fare 
Ordinance  did  not  attempt  to  fix  the  rate  of  return.     In  Minne- 
apolis, the  rate  of  Initial  Capital  was  fixed,  while  upon  New 
Capital  the  company  was  to  be  allowed  the  rate  of  interest  pro- 
vided in  the  issue,  as  approved  by  the  city,  plus  1  per  cent., 
except  that  the  additional  1  per  cent,  was  not  to  be  allowed  upon 
money  loaned  to  the  company  by  the  city,  nor  upon  security  issues 
guaranteed  by  the  city. 


ii 


66 


8£BViCE  At  Cost  Aubeemitnts 


til 


i( 


'i'^^ 


The  sixth  of  the  principles  — ; 

Reward  for  Good  Blanagement  is  Essential  as  Return  upon 
Capital  and  should  be  Included  as  an  Item  in  the  Cost  of 
Service. 

In  the  Cleveland,  Youngstown,  Boston,  Massachusetts  General, 
Eastern  Massachusetts,  Westervillo,  Chicago,  Philadelphia,  Den- 
ver Elastic  Six-cent  Fare  and  Minneapolis  plans,  there  is  no  pro- 
vision by  which  good  management  is  rewarded.  In  Cincinnati 
surplus  remaining  after  the  cost  of  service  is  paid  is  divided 
between  the  car  rider  and  the  company  in  accordance  with  the 
rate  o£  fare  prevailing.  For  the  company  to  benefit  by  this 
pro\dsion,  the  rate  of  fare  in  effect  must  be  six  cents  or  less.  In 
Montreal,  the  company  for  keeping  expenditures  within  21^  per 
cent,  of  the  annual  budget  allowances,  receives  an  "  Operating 
Profit "  of  one-eighth  of  1  per  cent,  of  the  average  Capital  Value 
for  the  year.  In  addition,  surplus  remaining  from  revenues  after 
the  cost  of  the  service  has  been  paid,  is  divided  50  per  cent,  to 
the  Fare  Eeduction  Fund,  30  per  cent,  to  the  City  and  20  per 
cent,  to  the  Company.  In  Dallas  the  rate  of  return  varies  with 
tShe  rate  of  fare  in  effect.  If  the  fare  be  five  cents,  22  tickets 
for  $1,  the  rate  of  return  is  7  per  cent. ;  if  the  fare  be  five  cents, 
six  tickets  for  25  cents,  it  is  8  per  cent. ;  if  the  fare  be  ^vc  cents, 
seven  tickets  for  25  cents,  it  is  sy^  per  cent. ;  if  the  fare  be  five 
cents,  eight  tickets  for  25  cents,  it  is  9  per  cent.  By  the  Memphis 
order  the  company  is  assured  of  a  minimum  return  of  Qy^  per 
cent.  Deficits  therein  are  cumulajtive  and  are  paid  from  subse- 
quent gross  revenue  before  additions  are  made  to  the  Fare  Index 
Fund.  If  in  any  month  the  balance  in  this  Fund  Ix?  $60,000  or 
more,  the  company  receives  a  return  of  714  per  cent.,  unless  it 
be  necessary  to  deplete  the  fund  below  $60,000  to  make  the  pay- 
ment. By  the  provisions  of  the  Denver  Service  at  Cost  ordinance 
the  company  was  to  receive  additional  allowances  in  rate  of  return 
based  upon  the  fare  in  effect.  For  any  month  in  which  a  six-cent 
fare  was  in  effect  it  was  to  receive  one-twelfth  of  one-fourth  of 
1  per  cent. ;  in  any  month  during  which  a  five  and  one-half  cent 
fare  was  effective,  one-twelfth  of  one-half  of  1  per  cent. ;  in  any 
month  in  which  a  five-cent  fare  was  effective,  one-twelfth  of  three- 
quarters  of  1  per  cent,  and  when  a  fare  of  leas  than  five  cents 
was  effective,  ono-twelf th  of  1  per  cent 


SERVICE  AT  COST  PLANS  IN  EFFECT 


An  Identical  Analysis  of  the  Laws,  Ordinances,  Agreements 
and  Commission  Orders  under  which  Service  at  Cost  is 
in  effect  in  Cleveland,  Youngstown,  Cincinnati,  Boston, 
Montreal,  Westerville,  Dallas,  Memphis,  the  cities  served 
by  the  Eastern  Massachusetts  Street  Railway  Company, 
and  is  available  to  all  Massachusetts  street  railways. 

"  Service  at  cost "  is  a  term  that  has  come  to  be  quite  generally 
applied  to  a  plan  for  the  conduct  of  electric  railways  as  quasi- 
private  cntei-prises,  by  which  fares  arc  made  to  automatically 
respond  to  the  cost  of  providing  the  sen-ice,  and  it  is  in  this  sense 
that  it  is  here  applied. 

It  is  only  to  the  extent  that  the  regulation  is  automatic  that  the 
principle  involved  differs  from  that  under  which  the  rates  of  public 
utilities  are  regulated  by  State  or  lo(*al  commissions  having  juris- 
diction over  rates  irrespective  of  franchise  stipulations.  As  soon 
as  government  put  a  limit  upon  the  return  which  these  enter- 
prises could  earn,  the  service  at  cost  principle  was  bom,  and 
later  developments  of  regulation  have  but  expanded  and  refined 
it.  The  primary  object  of  all  public  utility  regulation  is  to  secure 
for  the  public  the  required  service  at  the  lowest  cost  consistent 
with  the  furnishing  of  such  sei-vice.  The  right  of  the  public, 
through  its  duly  constituted  authorities,  to  prescribe  the  kind  and 
extent  of  the  sei-vice  to  be  furnished  is  undoubted,  but  it  is  accom- 
panied by  the  duty  to  provide  sufficient  revenue  to  pay  the  cost  of 
providing  the  service  prescribed. 

The  adjustment  of  these  two  basic  elements  of  regulation  so  as 
to  bring  them  into  harmony ;  the  construction  of  machinery  for 
regulation  which  will  work  with  the  least  possible  friction;  the 
adaptation  of  this  artificial  process  of  price  regulation  to  bring 
it  into  step  with  the  economic  laws  which  govern  unregulated 
industry, —  these  constitute  the  goal  towards  which  the  efforts^  pf 

I67J 


t 


6S 


Service  At  Cost  Agreemf.nts 


W 


those  wprking  for  a  better  relationship  between  the  public  and  the 
utilities  serving  them  should  be  directed. 

To  avoid  waste,  complexity  and  inefficiency  in  the  operation  of 
local  transportation  systems,  some  quick,  automatic,  just  and  equi- 
table method  of  making  the  price  received  for  public  utility  service 
responsive  to  its  cost  is  essential.     This  the  cost  of  service  plans 
here  discussed  attempt  to  do.     The  elements  of  this  cost  are 
defined  and  agreed  to.     Included  is  the  return  to  those  whose 
money  is  being  used  in  the  public  service  and  the  rewards  to  those 
who  furnish  the  managerial  service  that  turns  mere  physical  prop- 
erty and  legal  rights  and  privileges  into  a  live  public  enterprise. 
Provision  is  made  for  the  payment  of  the  costs  of  service  as  defined, 
either  from  revenue  received  from  fares  directly  or  indirectly 
from  the  public  treasury.     Means  and  methods  of  determining 
the  total  of  the  cost  are  provided  by  methods  which  safeguard  the 
public  interest  and,  when  the  amount  is  so  determined,  the  rev- 
enue is  increased  or  decreased    in  amount  so  as  to  cover  all  costs. 
That  is  the  theory  of  a  service  at  cost  plan. 

Of  those  considered  in  the  following  pages,  that  now  in  effect 
in  Cleveland  was  the  first.    It  became  operative  in  1910.    It  was 
not  until  some  seven  years  later  that  the  same  principles  were 
again  applied,  this  time  in  Dallas,  Texas,  where  in  1917,  a  some- 
what similar  grant  became  effective.    Later  in  the  same  year,  the 
agreement  covering  the  operation  of  the  Westerville  division  of 
the  Columbus  Railway,  Power  &  Light  Company  went  into  effect. 
Nineteen  eighteen,  saw  the  Boston  Elevated,  the  Massachusetts 
Eastern  (then  the  Bay  State),  the  Massachusetts  General  Acts,  and 
the  Cincinnati  and  Montreal- franchises  put  into  effect    In  1919, 
Youngstown  entered  into  an  agreement  with  the  Mahoning  & 
Shenango  Railway  &  Light  Company  for  the  operation  of  its 
Youngstown  lines  under  a  service  at  cost  plan,  and  in  1920,  the 
Tennessee  Railroad  and  Public  Utilities  Commission  promulgated 
an  order  for  service  at  cost  for  the  Memphis  Railway  Company. 
In  the  following  pages  the  provisions  of  these  various  ordinances 
are  grouped  under  the  following  heads,  in  order  that  the  student 
of  the  subject  may  readily  grasp  the  varying  provisions  covering 
the  same  object; 


Service  At  Cost  Agkeemexts  69 

A.  GENERAL  CONDITIONS  — 

1.  Life:  , 

2.  Renewal: 

3.  Forfeiture: 

B.  MUNICIPAL  PURCHASE — 

1.  By  the  City: 

(a)  When  Purchase  Can  Be  Made: 

(b)  Terms  of  Purchase: 

2.  By  Licensee  of  City : 

(a)  When  Purchase  Can  Be  Made: 

(b)  Terms  of  Purchase: 

C.  CONTROL  — 

1.  Corporate  Autonomy: 

2.  Of  Service : 

(a)  Within  Municipality : 

(b)  Outside  of  Municipality : 

3.  Of  Construction,  Maintenance  and  Repairs: 

4.  Of  Extensions,  Betterments  and  Permanent  Im- 

provements : 

(a)  Definitions: 

(b)  Within  Municipality: 

(c)  Outside  of  Municipality: 

5.  Of  Capitalization,  Financesimd  Accounts: 

(a)  Ordinary  Expenses: 

(b)  Securities: 

(c)  Bookkeeping: 

6.  Methods  and  Practices: 

7.  Use  of  TrfiLck  and  Facilities  by  Other  Companies: 

8.  Machinery  of  Control: 

(a)  Power,  Where  Lodged : 

(b)  Administration: 

(c)  Powers  md  Duties  of  Administrative  Body : 


70 


Sekvice  At  Cost  Agbeemkjsts 


a  CONTROL  —  cow/mi^cd 

d,  ArhUraiion: 

(a)  Machinery  For: 

(b)  Powers  of  Arbitration  Authorities: 

(c)  Penalties: 

(d)  Expenses  of  Arbitration: 

D.  EMTURN  — 

1.  Initial  Value: 

2.  Added  Valiie: 

3.  Deduclimis  From  Value: 

4.  Rate  of  Betwm,  Normal: 

5.  Additional  Allowatices: 

6.  Assurance  of  Return : 

E.  COST  OF  SERVICE  — 

1.  Definition  of: 

2.  Allowances: 

(a)  Operating: 

(b)  Maintenance: 

(b-1)  Definiiion: 
(b-2)  How  Fixed: 

(c)  Depreciation: 

3.  Special  Tax  and  Impost  Features: 

F.  FARES  — 

1.  Schedules  of: 

2.  How  Fixed : 

G.  TRANSPORTATION     OF     FREIGHT,     EXPRESS, 

ETC.— 

H.  SPECIAL  PROVISIONS  -^ 


Seevice  At  Cost  AoREEME'iSTS 


71 


A.    GENERAL  CONDITIONS 


1.—  LIFE 

Cleveland 

The  life  of  the  franchise  is  25  years.     (Sec.  2.) 

Note. —  The  grant,  amended  in  some  slight  particulars  was  renewed  for 
25  years  in  April,  1919. 

YoUNGSTOWN 

The  life  of  the  franchise  is  25  years.     (Sec.  2.) 

Cincinnati 
In  August,  1896,  the  Company  was  granted  a  fifty-year  fran- 
chise, which  provided  for  revision  at  the  end  of  twenty  years.  In 
1916,  the  franchise  was  revised,  but  the  new  grant  was  declared 
unconstitutional  in  some  of  its  features  and  the  present  grant, 
passed  in  1918,  takes  the  place  of  the  1916  revision.  The 
original  franchise  runs  until  1946. 

Boston 
The  period  of  public  operation  specified  in  chapter  159  of  the 
special  acts  of  the  Massachusetts  Legislature  of  1918  is  ten  years 
from  the  date  when  the  act  took  effect,  but  unless  terminated  by 
the  State  continues  indefinitely.     (Sees.  1  and  12.) 

Massachusetts  (General) 
The  instrument  providing  for  service-at-cost  for  Massachusetts 
railways,  other  than  the  Boston  Elevated  Railway  Co.,  and  the 
Eastern  Massachusetts  Street  Railway  Co.,  is  statute  law,  and  is 
subject,  to  repeal  and  amendment  by  the  Massachusetts  Legisla- 
ture.    No  other  term  is  fixed. 

Montreal 

The  agreement,  entered  into  in  1918,  expires  March  24,  1953 
(Art.  24). 

Eastern  Massachusetts 
The  term  of  operation  under  public  trustees  is  ten  years  from 
the  dat«  upon  which  the  property  was  taken  over  by  the  new  com- 
pany (on  May  31,  1919).     (Sec.  2.) 


LI 


i 


72 


Sebvice  At  Cost  AoreemfxXts 


At  the  termination  of  the  period  of  operation  by  public  trustees, 
the  Board  of  Directors  of  the  New  Company  shall  exercise  all 
powers  conferred  upon  the  Trustees,  not  inconsistent  with  the 
general  laws,  until  the  General  Court  (Legislature)  shall  other- 
wise determine.     (Sec.  13.) 

The  IN'ew  Company  shall  at  the  expiration  of  the  ten-year  period 
of  operation  of  public  trustees  have  all  the  powers  and  privileges 
and  be  eabject  to  all  of  the  restrictions  of  a  street  railway  com- 
pany organized  under  the  general  laws  of  Massachusetts,  and,  with 
the  consent  of  the  Public  Service  Commission,  may  exercise  addi- 
tional powers  conferred  on  the  Bay  State  Street  Railway  Co.,  by 
the  special  act,  subject  to  further  action  by  the  General  Court. 
(Sec.  18.) 

NOTPE. —  The  Public  Service  Commission  was  abolished  on  December  1,  1919, 
and  its  franchises  were  assumed  by  a  new  public  body  — the  Department  of 
Public  Utilities  — the  new  department  being  a  merger  of  the  Public  Service 
Commission  and  the  former  Gas  and  Electric  Commission. 

Westebville 
The  life  of  the  franchise  is  25  years.     (Sec.  2.) 

The  life  of  the  Grant  is  indeterminate.  Unless  forfeited,  or 
otherwise  terminated  by  law,  it  ends  only  with  the  purchase  of 
the  property  by  the  City  or  by  a  license  of  the  City.     (Sec.  38.) 

Memphis 
Service  at  cost  was  made  effective  by  an  order  of  the  State 
Railroad  and  Public  Utilities  Commission,  which  order  is  revoc- 
able at  the  pleasure  of  the  Board. 

2.— RENEWAL 

Cleveland 
When  the  grant  has  less  than  fifteen  years  to  run,  the  Company 
shall  have  the  right  to  collect  the  maximum  rate  of  fare  and  con- 
trol of  schedules  passes  from  the  City  to  the  Company,  except  that 
the  City  retains  its  police  power  to  require  proper  and  reasonable 
service.  If  the  Interest  Fund  exceeds  $500,000,  the  surplus  shall 
be  applied  to  the  reduction  of  capital  value,  by 


Service  At  Cost  Aoreemen^ts 


73 


First,  the  payment  of  floating. indebtedness; 

Second,  the  retirement  of  such  bonds  as  can  under  the 
terms  of  the  mortgage  be  so  paid ; 

Third,  the  creation  of  a  sinking  fund  for  the  reduction  of 
capital  value.     (Sec.  38.) 

The  City  may  at  any  time,  either  before  or  after  the  grant  has 
fifteen  years  to  run,  renew  such  grant,  "  imposing  upon  the  Com- 
pany no  substantial  burden  ...  in  addition  ",  and  the  Com- 
pany must  either  accept  mch  renewal,  or  be  deprived  of  control 
over  rates  or  schedules.  "Substantial  burden"  is  defined  to 
mean  that  the  grant  shall  be  identical  in  terms  with  present  grant, 
except  as  to  date  of  expiration  and  as  the  certain  provisions  of  its 
rights-  to  assign  its  right  to  purchase  to  a  third  party,  or  shall 
differ  from  present  grant  only  in  such  particulars  as  shall  be 
agreed  upon  by  Company  and  City.     (Sees.  39,  40,  41.) 

The  right  of  the  City  to  propose  extensions,  betterments  and 
permanent  improvements  ceases  when  the  grant  shall  have  legs 
than  fifteen  years  to  run.     (Sec.  27.) 

Youn^gstown 

There  are  no  specific  provisions  for  the  renewal  of  the  fran- 
chise. 

When  the  grant  has  less  than  15  yearg  to  run,  the  Company 
shall : 

Have  sole  control  over  betterments,  extension  and  permanent 
improvement.     (Sees.  15  and  18.) 

Have  the  right  to  charge  such  a  rate  of  fare,  as  will  create  an 
Amortization  Fund,  to  consist  of  all  surplus  receipts  remaining 
after  operating  costs,  maintenance,  repair  and  renewals  and  re- 
turn on  capital  value,  sufiicient  with  accumulated  interest  at  seven 
per  cent,  thereon,  to  extinguish  the  difference  between  the  esti- 
mated salvage  value  of  the  property  at  the  expiration  of  the  grant, 
and  the  then  capital  value.  The  power  of  the  Commissioner  ex- 
cept as  thus  limited,  is  to  continue,  and  disagreement  as  to  rates 
of  fare  and  salvage  value  is  to  be  subject  to  arbitration  (Sec 
18.) 

If  the  grant  be  renewed,  the  capital  value,  fixed  therein,  shall 
be  the  capital  value  fixed  by  the  original  grant,  increased  or  de- 
creased as  provided  for  in  the  original  grant.     (Sec.  18-A.) 


! 


■861 


74 


» 


Sebvice  At  Cost  Agreements 


Cincinnati 
There  is  no  provision  for  the  renewal  of  the  original  franchise, 
but  revisions  are  provided  for  at  the  expiration  of  the  first  twenty 
years  and  each  fifteen  years  thereafter. 

Boston 

Public  operation  and  management  shall  continue  after  the  ex- 
piration of  the  ten-year  period  until  such  time  as  the  Common- 
wealth shall  elect  to  discontinue  it.     (Sec.  12.) 


^0  provisions. 
No  provisions. 
'No  provisions. 


Massachusetts  (General) 


Montreal 


Eastern  Massachusetts 


Westerville 
1^0  direct  provisions  for  renewal  are  contained  in  the  Grant. 
When  the  Grant  has  less  than  fifteen  years  to  run,  control  of 
service  passes-  from  the  Commissioners  to  the  Company,  which  is 
authorized  to  charge  any  rate  of  fare,  not  in  excess  of  the  highest 
named  in  the  schedule  of  fares  contained  in  the  Grant.  If,  later 
the  6rant  shall  be  renewed,  for  a  period  of  not  less  than  fifteen 
years,  nor  less  than  the  unexpired  term,  so  that  no  substantial 
changes  shall  be  made  in  its  provisions,  control  of  the  service  shall 
revert  to  the  Commissioners,  and  fares  shall  be  regulated  in  ac- 
cordance with  Grant.     (Sec.  7.) 


No  provisions. 
See  A.  1. 


Dallas 

Memphis 


8.— FORFEITURE 

Cleveland 
If  the  Company  fails  to  comply  with  the  provisions  of  the  grant 
find  the  general  ordinances  of  the  City,  and  shall  continue  in  such 
default  for  six  months  after  written  notice  has  been  served  upon 
it  by  the  City,  it  shall  forfeit  all  rights  and  privileges  under  the 
grant.     (Sec.  43.) 


Service  At  Cost  Agreeme'nts 


75 


YOUNGSTOWN 

If  the  Company  fails  to  comply  with  the  terms  of  the  grant  and 
♦his  failure  shall  continue  for  six  months  after  written  notice 
shall  have  been  served  by  the  City,  the  City  shall  have  the  right  to 
assume  charge  of  the  property  and  operate  it  until  the  Company 
shall  have  complied  with  all  terms  and  conditions  of  the  grant. 
During  such  period  of  City  operation,  the  surplus  income  derived 
shall  be  paid  into  the  Stablizing  Fund.      (Sec.  19.) 

Cincinnati 

The  Companies  shall  give  an  additional  bond  of  $250,000  to  in- 
sure the  performance  of  their  obligations  under  the  ordinance  of 
1896  and  the  present  revision.  Failure  to  so  perform  their  obliga- 
tions renders  the  ordinance  null  and  void,  in  so  far  as  it  confers 
rights  or  privileges  upon  the  Companies.  The  sureties  may  be 
increased  at  the  instance  of  the  City.     (Sec.  28.) 

Boston 
By  appropriate  legislation,  passed  not  less  than  two  years  before 
the  date  fixed  for  termination,  the  Commonwealth  may  terminate 
public  management,  either  at  the  expiration  of  the  ten-year  period 
or  at  any  time  thereafter.     (Sec.  12.) 

Massachusetts  (General) 

The  law  may  be  repealed  or  amended  by  the  Massachusetts 
Legislature. 

Montreal 
No  provision  for  forfeiture : 

For  failure  to  comply  with  the  terms  of  the  agreement  the  Com- 
pany is  liable  to  a  fine  of  $40  a  day  for  each  day  during  which  the 
noncompliance  continues-.  The  fine  is  collected  through  the 
Recorder's  Court  of  Montreal  and,  in  the  discretion  of  the  Court, 
costs  may  be  added  thereto.  The  fines  collected  become  the  prop- 
erty of  the  city.  In  the  case  that  the  violation  affects  only  outside 
municipalities,  they  may  proceed  through  any  court  of  competent 
jurisdiction  to  collect  the  fine,  and  upon  collection  it  becomes  the 
property  of  the  municipality,  where  the  failure  to  comply  occurred. 
(Art.  96). 


76 


Sekvioe  At  Cost  Agreemfxts 


Ko  provisions. 
Mo  provisions. 


Eastern  Massachusetts 
Westervillb 


Dallas 

In  the  event  that  the  City  determines  to  purchase  the  property, 
or  authorizes  its  purchase  by  a  License,  and  the  Company  fails  to 
comply  with  the  provisions  of  the  Grant  relative  to  such  purchase, 
the  Grant  shall  be  forfeited.     (Sec.  41.) 

The  Grant  is  forfeited,  if  the  Company  fails  to  comply  with 
my  or  all  of  the  terms  of  the  Grant ;  with  the  general  city  ordi- 
nances relative  to  the  construction,  maintenance  or  operation  of 
street  railways  lawfully  in  force  at  the  time  of  the  acceptance  of 
the  Grant  or  thereafter  adopted;  if  the  Company  willfully  de- 
faults in  the  performance  of  the  terms  and  conditions  of  the  lease 
covering  the  property  of  the  Northern  Texas  Traction  Co.,  pro- 
vided in  the  Grant  or  collusively  permits  the  termination  of  such 
lease  before  the  term  provided ;  or  willfully  and  continuously  fails 
to  carry  out  the  award  of  any  Board  of  Arbitration.  When  the 
Company  is  in  default  in  any  of  these  regards,  the  City  may  serve 
due  notice  upon  it,  specifying  the  default.  If  default  continues 
for  six  months  after  the  date  of  such  notice,  the  Board  of  City 
Commissioners  is  authorized  to  declare  the  Grant  forfeited,  but 
the  forfeiture  shall  be  enforced  only  in  the  manner  provided  in 
the  Dallas  City  Charter.     (Sec.  42.) 


See  A.  1. 
1.— BY  THE  CITY 


Memphis 
B.    PUBLIC  PURCHASE 


(a)  When  the  Purchase  Can  be  Made 

Cleveland 

The  City  may  at  any  time,  upon  six  months'  notice,  purchase 
the  property,  franchises  and  all  rights  of  the  Company.  (For 
terms,  see  B-1  (b).)     (Sec.  31.) 

The  City  may  at  the  expiration  of  the  grant,  purchase  either  the 
entire  property  of  the  Company,  or  that  portion  of  its  property 
located  within  city  limits.    (For  terms,  see  B  1  (b).)    (Sec.  34.) 


Service  At  Cost  Ageeembtxts 


i  i 


YOUNGSTOWN 

The  City  may,  upon  six  months'  notice,  any  time  during  the 
life  of  the  grant,  purchase  the  property  covered  by  the  grant. 
(Sec.  16.) 

The  City  may  purchase  the  property  covered  by  the  grant  at 
the  expiration  of  the  grant.     (Sec.  16-A.) 

Cincinnati 
At  any  time  during  the  term  of  the  grant,  or  any  renewal  or 
extension  thereof,  upon  three  months'  notice  by  the  City  of  its 
intention  to  purchase.     (Sec.  25.) 

Boston 

Under  provisions  of  the  act,  at  any  time  during  the  period  of 
public  management  and  operation;  under  the  State's  power  of 
eminent  domain,  at  any  time.     (Sec.  16.) 

Massachusetts   (General) 
At  any  time. 

Montreal 
On  March  24,  1953,  and  at  the  expiration  of  every  subsequent 
five-year  period,  upon  notice  being  given  six  months  before  the 
date  of  purchase. 

Eastern  Massachusetts 
Under  provisions  of  the  Act,  at  any  time  during  the  period  of 
operation  by  Public  Trustees ;  under  the  State's  power  of  eminent 
domain,  at  any  time.     (Sec.  19.) 

Westerville 

At  any  time  upon  six  months'  notice  in  writing  by  the  Com- 
missions.    (Sec.  15.) 

Dallas 

At  any  time  after  ten  yeai-s  from  the  date  when  the  Grant  bcv 
came  effective.     (Sec.  38.) 


li 


Memphis 


No  provisions. 


78 


Service  At  Cost  Agreemitnts 


(b)  Terms  of  Purchase 


Cleveland 

If  the  City  shall  purchase  the  property  of  the  Company  before 
the  expiration  of  the  grant,  it  shall  assume  the  current  floating  in- 
debtedness of  the  ccmpaiiy,  shall  assume,  or  pay,  its  bonded  in- 
debtedness, shall  pay  the  difference  between  its  bonded  indebted- 
ness and  its  capital  value,  as  determined  by  the  terms  of  the  present 
grant,  and,  in  addition  shall  pay  an  additional  ten  per  cent,  upon 
the  difference  between  the  sum  of  its  bonded  and  floating  indebted- 
ness and  its  then  capital  value.  If  the  current  obligations,  of  the 
Company,  except  those  incurred,  for  extensions,  betterments  and 
permanent  improvements,  exceed  a  sum  equal  to  ten  per  cent  of 
the  gross  reteipts  of  the  Company  for  the  next  preceding  calendar 
year,  such  excess  is  to  be  deducted  from  capital  value.     (Sec.  ai.) 

If  the  City  shall  purchase  the  property  at  the  expiration  of  the 
grant,  it  shall  be  upon  the  same  terms-  as  are  provided  for  pur- 
chase during  the  life  of  the  grant,  except  that  ten  per  cent  shall 
not  be  added  to  any  part  of  the  capital  value.     (Sec.  34.) 

YOUJSTQSTOWN 

If  purchased  before  the  expiration  of  the  grant,  the  City  shall 
by  ordinance,  provide  for  a  term  of  twenty-five  years,  for  the 
operation  of  the  interurban,  suburban,  freight  and  supply  cars  of 
the  Mahoning  &  Shenango  Eailway  &  Light  Company,  over  the 
city  tracks,  at  a  price  to  be  base  on  cost  of  maintenance, 
repair  and  renewal  of  tracks  and  power  stations  and  return 
on  investment;  it  shall  provide  by  contract  for  the  supply  of 
steam  to  the  Company  from  the  North  Avenue  station  and  the 
maintenance  of  steam  lines  and  connections  thereto ;  it  shall  pay 
for  the  property  covered  by  the  grant,  the  then  capital  value, 
either  by  cash  payment  or  by  the  assumption  of  the  bonded  and 
floating  debt  and  the  payment  in  caeh  of  the  difference  between 
this  amount  and  the  then  capital  valua  If  the  City  so  desires 
the  Company  shall  turn  any  securities  in  the  Stabilizing  Fund 
into  cash,  and  retain  the  full  amount  in  the  fund,  deducting  this 
from  Capital  value,  or  the  fund  may  be  retained  by  the  City  and 


Service  At  Cost  Agreemfnts 


79 


110  deductions  made  from  Capital  value.  These  terms  apply  also 
to  purchase  at  the  expiration  of  the  grant.  (Sees.  16  and  16-A.) 
If  within  forty-eight  months  of  the  time  that  the  grant  shall 
take  effect,  the  Mahoning  &  Shenango  Railway  &  Light  Co.  shall 
nave  organized  a  new  corporation  which  shall  purchase  and 
.•perate  the  property  named  in  the  grant,  and  which  shall  agree  to 
offer  for  sale  to  the  residents  of  Youngstown,  any  securities  there- 
after issued  by  it  in  accordance  with  the  permission  of  the  City, 
there  shall  be  added  to  the  purchase  price  ten  per  cent,  of  the 
difference  between  the  funded  debt  of  the  Company  and  the  Capi- 
tal value  at  the  time  of  the  purchase,  if  the  property  be  purchased 
before  the  expiration  of  the  grant,  but  not  if  it  be  purchased  at 
the  expiration  of  the  grant.     (Sees.  16  and  16-A.) 

Cincinnati 
The  City  may  purchase  the  property  in  pursuance  to  the  method 
provided  by  the  constitution  of  the  State  of  Ohio,  or  upon  pay- 
ment of  $26,238,950,  plus. 

1.  The  amount  required  to  pay  and  retire  the  outstanding  Ee- 
ducible  Debt.     (See  E.  1,  Third.) 

2.  The  amount  required  to  retire  outstanding  car  trust  certifi- 
cates issued  after  the  date  the  grant  became  effective.  (See  E.  1, 
First.) 

3.  The  amount  required  to  retire  the  securities  issued  to  pro 
vide  $250,000  of  the  Reserve  Fund.     (See  E.  1,  Eight.) 

4.  The  amount  required  to  retire  securities  issued  to  provide 
for  capital  expenditures  made  after  January  1,  1917. 

5.  Deficiencies  in  payments  from  gross  revenue  required  to  be 
made  by  the  terms  of  the  grant. 

6.  Interest  on  moneys  borrowed  to  make  up  such  deficiencies. 

MINUS 

1.  The  balance  at  the  time  of  the  purchase  in  Depreciation  and 
Reserve  funds  accrued  after  January  1,  1917. 

2.  Payments  made  after  January  1,  1917,  into  sinking  funds 
for  securities  and  notes-  issued  by  the  Companies  after  January  1 
1917. 

3.  The  sums  in  the  Working  Capital  Fund  (see  E.  1,  Seventh) 
and  the  Reserve  Fund  (see  E.  1,  Eighth). 


80 


Service  At  Cost  Acjreements 


1 


'  1! . 


I  li 


4.  The  aggr^ate  amount  paid  after  Januaiy,  1917,  for  dam- 
ages and  claims,  accruing  before  that  date,  the  City  to  assuiiie  all 
liability  for  damages  and  claims  made  after  the  date  of  purchase. 

All  cash  on  hand,  and  in  banks,  and  bills  and  accounts  receiv- 
able by  the  Company  from  its  operations-,  as  well  as  money  to  be 
received  from  the  sale  of  securities  and  notes  to  be  conveyed  to  the 
City,  which  assumes  responsibility  for  outstanding  contracts  and 
liabilities  of  the  Company  and  agrees  to  pay  all  HUs  and  accounts 
payable.     (Sec.  25.) 

Upon  the  proffer  of  the  purchase  price  in  gold  coin  of  the 
United  States,  the  Company  shall  convey  its  property,  as  specified 
in  the  ordinance  to  the  City,  assigning  to  the  City  all  contracts, 
rights,  privileges  of  all  persons-,  firms  or  corporations  made  or 
granted  by  the  Company  under  the  terms  of  the  grant.  The  pur- 
chase price  includes  the  value  of  the  franchises  owned  by  the  Com- 
panies.    (Sec.  25.) 

Boston 
Upon  the  assumption  of  the  Company's  outstanding  indebted- 
nesg  and  liabilities  and  the  payment  of  an  amount  in  cash,  equal 
to  the  amount  paid  in,  in  cash,  by  its  stockholders  for  its  stock  then 
outstanding.     (Sec.  16.) 

Readjustment  of  this  provision  in  order  to  meet  conditions 
which  would  arise  through  the  purchase,  the  terms  of  which  are 
already  provided  by  law  previously  enacted,  of  the  West  End 
Street  Railway  Company,  now  leased  by  the  Boston  Elevated 
Railway  Co.,  is  provided  for,  but  the  principle  involved  is  the 
sama     (Sec.  16.) 

Massachusetts  (General) 
The  Commonwealth,  city  or  town,  shall  pay  in  cash  an  amount 
equal  to  the  Cash  Investment  as  defined  in  the  act,  plus  the  amount 
paid  in  for  preferred  stock,  and  shall  assume  all  outstanding 
bonds,  contracts,  leases  and  other  liabilities  of  the  Company. 
(Sec.  9.) 

The  right  of  the  Commonwealth  or  any  city  or  town  to  acquire 
the  property  by  virtue  of  their  power  of  eminent  domain  is  not 
*iffected  by  the  provisions  of  the  Act.     (Sec.  9.) 


Service  At  Cost  Agreements 


oX 


Montreal 

The  City  appoints  one  arbitrator,  the  Company  another,  and  a 
third  is  appointed  by  a  judge  of  the  Superior  Court  sitting  in  the 
District  of  Montreal.  These  three,  disregarding  any  valuation 
named  in  the  agreement  fix  a  valuation  on  the  property,  to  which 
is  added  ten  per  cent,  over  and  above  such  valuation.  This  figure 
constitutes  the  purchase  price,  and  for  it  the  Company  shall  con- 
vey to  the  City,  all  of  its  property  both  in  and  out  the  city,  includ- 
ing its-  franchises  and  privileges  in  communities  outside  the  City, 
the  value  of  which  shall  not,  however,  be  included  in  the  estimate 
of  the' arbitrators.     (Art.  92,  Par.  8.) 

No  other  municipality  than  the  City  shall  have  the  right  of 
purchase.     (Art.  02,  Par.  8.) 

Eastern  Massachusetts 
Under  the  provisions  of  the  Act,  upon  the  assoimption  of  the 
Company's  outstanding  indebtedness,  and  the  payment,  in  cash, 
of  an  amount  equal  to  the  par  value  of  its  shares,   plus  any 
premiums  paid  in  cash  therefor.     (Sec.  19.) 

Note. — Acquisition  of  the  property  under  the  State's  power  of  eminent 
domain  would  be  made  in  accordance  with  the  general  laws  governing  such 
acquisition. 

Westerville 

The  Company  is  required  to  sell  at  110  per  cent,  of  the  Capital 
Value  as  of  the  time  of  purchase.     (Sec.  15.) 

Dallas 

If  the  City  shall  purchase  at  all,  it  must  purchase  all,  and  "  not 
less  than  all "  of  the  Company's  property,  except  that  if  the  City 
has  not  the  legal  power  to  purchase  any  part  of  the  property  lying 
outside  of  the  City  limits,  it  is  required  to  purchase  only  such 
property  as  lies  within  the  City  limits,  together  with  such  prop- 
erty lying  outside  as  it  has  the  legal  power  to  purchase.   (Sec.  38.) 

The  price  to  be  paid  shall  be  based  upon  the  Property  Value  of 
the  Company  as  determined  by  the  terms  of  the  Grant.     (Sec.  38) 

Tn  the  event  that  Company  shall  have  purchased  the  property 
of  the  Northern  Texas  Traction  Co.,  the  lease  of  which  is  pro- 
vided for  in  the  Grant,  the  Initial  and  Added  Value  of  this  prop- 
erty as  provided  for  in  the  Grant,  shall  be  included  in  Property 


S2 


Seevice  At  Cost  Agkeements 


I 


1;, 


Value :  in  cage  that  this  property  has  not  been  purchased,  the  lease 
thereof  shall  be  assigned  to  the  City  and  its-  Initial  and  Added 
Value,  with  certain  readjustments  set  forth  in  the  Grant  shall  be 
deducted  from  Property  Value.     (Sec.  38.) 

Extensions,  Betterments  and  Improvements  addc-l  >f  Property 
Value,  but  not  paid  for  shall  be  deducted  from  Property  Value, 
but  the  City  shall  assume  obligatione  so  incurred.     (Sec.  38.) 

Property  purchased  subject  to  mortgage,  with  the  consent  of  the 
City,  the  mortgage  upon  which  cannot  be  extinguished,  shall  be 
transferred  to  the  City  subject  to  such  mortgage,  the  amount  of 
which  shall  be  deducted  from  Property  Value.     (Sec.  38.) 

If  in  the  Property  Value  at  the  time  of  purchase,  there  shall 
be  included  Extensions,  Betterments  or  Improvements  made 
within  the  ten  years  next  prior  to  the  date  of  purchase,  and  de- 
termined by  the  Company  and  Commission  at  the  time  under- 
taken, to  have  been  for  the  purpose  of  providing  for  the  entrance 
into  the  City  of  an  interurban  road,  or  to  which  the  Commission 
and  the  Company  shall  mutually  agree  this  provision  shall  apply, 
and  there  shall  not  have  been  earned  upon  the  capital  value  repre- 
sented by  such  extensions,  a  rate  of  return  equal  to  that  earned 
upon  the  rest  of  the  Property  Value,  and  if  during  the  time  be- 
tween the  expenditures  for  such  Extensions,  Betterments  or  Im- 
provements, the  earnings  of  the  Company  shall  have  been  insuf- 
ficient to  pay  the  authorized  return  upon  total  Property  Value, 
then  there  shall  be  added  to  the  purchase  price  a  sum  equal  to  the 
aggregate  deficit  between  the  return  earned  upon  the  Property 
Value  as  a  whole  and  that  earned  upon  the  Property  Value  repre- 
sented by  such  Extensions,  Betterments  or  Improvements  (Sec 
40.) 

In  the  event  that  City  does  not  purchase  all  of  the  property 
lying  outside  of  City  limits,  the  value  of  such  property  reached, 
"  after  taking  into  consideration  the  fact  of  its  severance  from  rest 
of  Grantee's  property '-  shall  be  deducted  from  Property  Value. 
In  its  notice  to  the  Company  of  intent  to  purchase,  the  City  shall 
list  specifically  the  property  it  has  not  the  l^al  power  to  piirchase 
and  if  within  three  months  after  the  date  of  such  notice.  City  and 
Company  are  unable  to  agree  upon  the  amount  to  be  deducted,  the 
question  shall  be  arbitrated.    (Sec.  38.) 


Service  At  Cost  Agreements 


83 


The  City  may  elect  to  assume,  in  lieu  of  cash  payment,  any  or 
all  of  the  bonds  and  other  evidences  of  indebtedness,  secured  by 
lien,  on  account  of  Property  Value.  If  so,  the  amount,  together 
with  accrued  interest,  shall  be  deducted  from  Property  Value. 
(Sec.  38.) 

All  of  the  Keserves  provided  for  in  the  Grant,  and  property 
purchased  with  money  taken  therefrom,  become  the  property  of 
the  City.  This  includes  Working  Capital,  except  such  amounts 
as  are  due  and  applicable  to  return  on  Capital  Value,  due  to  the 
Company.     (Sec.  38.) 

Cash  on  hand,  derived  from  securities  or  borrowed  for  the  pur- 
pose of  making  Extensions,  Betterments  and  Improvements,  shall 
be  treated  as  if  actually  expended  and  shall  pass  to  the  City  as 
part  of  the  property  purchased.     (Sec.  38.) 

Because  the  Reserves  become  the  property  of  the  City,  the  City 
assumes  liability  for  all  payments  chargeable  either  to  the  Re- 
serves or  Operating  Expenses.  The  City  assumes  the  Company's 
obligations,  both  of  contract  and  of  tort  "  so  far  as  incurred  in  the 
ordinary  and  proper  conduct  of  the  Grantee's  business-  hereunder," 
except  as  to  bonds  or  other  indebtedness  not  assumed  by  the  City 
as  a  part  of  the  Purchase  Price  not  a  lien  upon  the  property,  or 
such  additions  to  Working  Capital  as  are  included  in  Property 
Value.     (Sec.  38.) 

The  price  to  be  paid  by  the  City  for  the  property  shall  equal 
the  then  Property  Value,  as  determined  in  accordance  with  the 
foregoing,  plus  five  per  cent  of  Property  Value  and  plus  an  addi- 
tional five  per  cent  of  the  Property  Value  added  during  the  ten 
years  next  prior  to  the  date  of  purchase.     (Sec.  38.) 

The  City,  electing  to  purchase,  shall  serve  six  months'  notice 
on  the  Company  specifying  a  date  (not  more  than  twelve  months 
from  the  date  of  such  notice)  when  the  property  shall  be  turned 
over  to  it.     (Sec.  38.) 

If  the  Company  fail?  to  turn  over  the  property  in  accordance 
with  the  terms  of  the  Grant,  after  such  notice,  the  Grant  is  for- 
feited.    (Sec.  41.) 

If  the  City  shall  elect  to  pay  cash  for  the  property  and  not 
assume  any  of  the  Company's  funded  debt,  in  part  payment,  it 
shall  deposit  with  the  Trustees  of  the  first  mortgage  provided  for 


i' 

>  1 


nm 


84 


Sebvic'e  At  Cost  Agreements 


in  the  Grant,  the  amount  of  the  purchase  price  in  cas^h  to  be  held 
for  the  benefit  of  the  bondholders  and  the  Company  as  their 
respective  interests  may  appear.  Such  deposit  shall  act  as  a  dis^ 
charge  of  all  liens  against  the  property  under  mortgages  secured 
by  the  bond  is^^iies.     (Sec.  38.) 

Fnless  the  Courts  decide  that  the  provisions  of  the  Grant  as  to 
purchase  do  not  apply,  the  City  may  not  purchase  the  property 
in  any  other  manner  than  in    that    set    forth    in    the    Grant 
fSec.  88.) 

Memphis 

No  provisions. 

8.— BY  LICENSEE  OF  CITY 

(a)  When  Purchase  Can  Be  Made 

Cleveland 

The  City  may  grant  its  right  of  purchase  at  any  time  to  a 
licensee,  who  shall  agree  to  accept  a  rate  of  return,  not  lese  than 
a  quarter  of  one  per  cent,  lower  than  that  fixed  in  present  grant 
Such  licensee  shall  be  designated  by  competitive  bidding,  in  which 
the  Company  shall  be  allowed  to  participate.     (Sees.  32   33  ) 

If  at  the  expiration  of  the  grant,  the  City  shall  not  purchase 
the  property,  it  shall  have  the  right  to  grant  a  franchise  for  its 
operation  to  other  person  or  persons,  who  shall  purchase  the  prop- 
erty  of  the  Company  on  the  same  terms,  as  are  provided  for  Citv 
purchase.     (Sec.  37.) 

YOUNGSTOWN 

'No  provisions. 
No  provisions. 
No  provisions. 
Ho  provisions. 
No  provisions. 
Ko  piroviiioni. 


Service  At  Cost  Agkeements 


85 


Cincinnati 

Boston 

Massachusetts  (General) 

Montreal 
Eastsbn  Massachusetts 


Westerville 
No  provisions. 

Dallas 

At  any  time  after  ten  years  from  date  when  Grant  became 
effective.  (Sec.  39.) 

Memphis 
No  provisions. 

(b)  Terms  of  Purchase 

Cleveland 
If  a  Licensee  shall  acquire  the  property  of  the  Company,  it 
shall  be  upon  the  same  terms  as  are  provided  for  city  acquisition 
(Sec.  33.) 

If  at  the  expiration  of  the  grant,  a  subsequent  grantee,  shall 
purchase  the  property  of  the  company,  it  shall  be  upon  the  same 
forms  as  are  provided  for  City  purchase.     (Sec.  35.) 


No  provisions. 
No  provisions. 
No  provisions. 
No  provisions. 
No  provisions. 
No  provisions. 
No  provisions. 


Youngstown 

» 

Cincinnati 
Boston 

Massachusetts  (General) 

Montreal     • 
Eastern  Massachusetts 
Westerville 


Dallas 
Before  designation  by  the  City,  the  Licensee  must  deposit  with 
Hie  City  a  sum  equal  to  10  per  cent  of  the  then  Property  Value 
of  the  Company.     Should  the  Licensee  fail  to  acquire  the  prop- 
erty of  the  Company  within  tbi-ty  days  after  the  date  set  in  the 


86 


Service  At  Cost  Agkeements 


notice  to  the  Company,  or,  in  the  event  of  bona  fide  legal  pro- 
ceedings or  other  events  over  which  the  Licensee  has  no  control, 
within  thirty  days  from  the  date  of  release  from  such  restrictions, 
the  Commissioners  shall  by  resolution  declare  such  deposit  for- 
feited. In  that  event,  50  per  cent  of  the  amount  shall  be  paid 
into  the  City  Treasury  for  us©  for  general  city  purposes,  and  50 
per  cent  shall  be  paid  to  the  Company,  which  after  discharging 
any  expenses  incurred  by  reason  of  the  purchase  proceedings, 
shall  deposit  the  remainder  in  Surplus  Eeserve.  It  is  provided 
that  the  Company  shall  save  the  City  harmless  by  reason  of  this 
payment.     (Sec.  39.) 

The  purchase  of  the  property  by  any  licensee  of  the  City  shall 
be  subject  to  the  same  rights  of  purchase  either  by  the  City,  or 
by  a  licensee  of  the  City,  as  are  established  by  the  original  Grant. 
(Sec.  39.) 

In  the  case  of  purchase  by  a  Licensee,  the  City  reserve  the  right 
to  amend  the  Grant  in  any  manner  it  may  desire,  except  that  the 
highest  rate  of  fare  permitted  shall  not  be  in  excess  of  that  per- 
mitted to  be  charged  by  the  original  Grantee.     (Sec.  40.) 

In  the  event  of  purchase  by  Licensee  the  deed  of  conveyance 
given  by  the  Grantee  may  stipulate  that  the  conveyance  is  made 
subject  to  the  assumption  by  the  Licensee  of  all  liabilities  of 
Reserves  or  Operating  Expenses,  and  all  obligations  of  the  Com- 
pany, and  the  Grantee  may  retain  a  lien  upon  the  property  to  the 
extent  of  this  obligation  assumed  by  the  Grantee;  or,  the  Grantee 
may  require  from  the  Licensee  a  liability  bond,  sufficient  to  cover 
any  loss  arising  from  the  failure  of  the  Licensee  to  discharge  such 
obligations.     (Sec.  39.) 

In  other  regards,  except  as  to  the  Purchase  Price,  the  terms 
of  sale  are  the  same  as  that  covering  purchase  by  the  City.  [See 
B.  1,  (a).]     (Sec.  39.) 

The  price  to  be  paid  by  the  Licensee  for  the  property  shall  equal 
the  then  Property  Value,  as  determined  in  accordance  with  the 
provisions*  of  the  Grant,  plus  10  per  cent  of  the  then  Property 
Value  and  plus  an  additional  5  per  cent  of  the  Property  Value 
added  during  the  ten  years  next  prior  to  the  date  of  purchase. 
(Sec.  39.) 


Service  At  Cost  Ageeements 


87 


The  providon  as  to  the  addition  to  Purchase  Price,  to  care  for 
deficits  in  return  on  additions  made  during  the  ten  years  next 
prior  to  the  date  of  purchase  on  account  of  the  furnishing  of  facil- 
ities for  the  entrance  into  the  City  of  interurbans,  or  on  other 
additions  agreed  upon  between  the  City  and  the  Company,  as  it 
appears  under  B.  1.  (a),  applies  to  a  purchase  made  by  a  Licensee. 
(Sec.  40.) 

Memphis 
"No  provisions. 

C.    CONTROL 

1.— CORPORATE  AUTONOMY 


Cleveland 

The  autonomy  of  the  corporation  is  assured  by  the  following 
provision : 

Nothing  in  this  ordinance  contained  shall  operate  as  an  abridge- 
ment of  the  corporate  rights  or  powers  of  the  Company,  nor  of  the 
discretion  of  its  board  of  directors  in  the  selection  of  managers 
and  employes,  or  any  one  performing  any  duties  imposed  upon 
the  company  and  its  officers  by  law;  nor  shall  anything  herein 
contained  be  deemed  a  limitation  upon  the  amount  of  capital 
stock  which  shall  be  issued  by  the  Company,  or  indebtedness 
incurred  by  it.  The  Capital  Value  fixed  by  Section  16  hereof  is 
for  the  purpose  of  determining  the  return  to  the  Company  from 
the  carriage  of  passengers,  and  for  the  purpose  of  fixing,  from 
time  to  time,  the  rate  of  fare  and  the  price  at  which  the  purchase 
of  the  property  of  the  Company  may  be  made.     (Sec.  37.) 

The  Company  may,  without  the  consent  of  the  City,  issue  and 
sell  its  capital  stock,  or  increase  its  bonded  or  floating  debt ;  but 
no  increase  in  capital  stock  or  bonded  or  floating  indebtedness 
by  the  Company  shall  be  considered  a  part  of  Capital  Value  for 
the  purpose  of  fixing  the  return  to  the  Company,  unless  made  pur- 
suant to  the  provisions  of  the  Grant  or  with  the  consent  of  the 
City.     (Sec.  16.) 

YOUNGSTOWN 

The  autonomy  of  the  corporation  is  assured  by  the  following 
provision : 


( 


88 


Service  At  Cost  Aokeeaients 


Service  At  Cost  Agreements 


89 


N'othing  in  this  ordinance  contained  shall  operate  as  an  abridge- 
ment of  the  corporate  rights  or  powers  of  tlie  Companies,  nor  of 
the  discretion  of  their  hoards  of  directors  in  the  sdection  of 
managers  and  employes,  or  anyone  performing  any  dnties  imposed 
upon  said  Company  and  its  officers  hy  law;  nor  shall  anything 
herein  contained  be  deemed  a  limitation  npon  the  amount  of  cap- 
ital stock  which  shall  bo  issued  by  the  Company,  or  indebtedness 
incurred  by  it  except  to  the  extent  limited  by  that  part  of  section 
16,  which  applies  to  the  segregation  in  a  new  corporation  of  the 
•  lines  and  property  covered  by  this  ordinance  if  said  Company 
shall  in  the  terms  thereof  elect  to  so  s^regate  said  property.  The 
Capital  value  fixed  by  sections  10  and  10-A  hereof  is  for  the  sole 
purpose  of  determining,  first,  the  return  to  the  Company ;  second, 
for  the  purpose  of  fixing,  from  time  to  time,  the  rate  of  fare;  and, 
third,  the  price  at  which  the  purchase  of  the  property  of  the  Com- 
pany covered  by  this  ordinance  shall  be  made.     (Sec.  17.) 

Cincinnati 
No   specific   provision   for   corporate    autonomy  is   included, 
although  the  jurisdiction  of  the  City  over  certain  specified  funds 
is?  waived. 

Boston 

The  Company  practically  surrenders  its  corporate  autonomy. 
A  Board  of  Directors  is  retained,  elected  bv  the  stockholders,  but 
the  President,  Treasurer,  Clerk  and  all  other  officers  of  the  Com- 
pany are  appointed  and  may  be  removed  by  the  Public  Trustees. 
The  Directors  shall  '*  have  no  control  over  the  management  and 
operation  of  the  street  railway  system,  but  its  duties  shall  be  con- 
fined to  maintaining  the  corporate  organization,  protecting  the 
interests  of  the  Corporation  so  far  as  necessary,  and  taking  such 
action  from  time  to  time  as  may  be  deemed  expedient  in  cases,  if 
any,  where  the  Trustees  cannot  act  in  their  place."     (Sec.  4.  ) 

The  Trustees  shall  allow  the  Board  of  Directors  from  each  vear 
such  sum  as  may  be  deemed  reasonable  to  provide  for  the  cor- 
porate organization  and  enable  the  Board  of  Directors  to  perform 
itfi  duties.     (Sec.  4.) 


Massachusetts  (General) 
The  act  does  not  directly  provide  for  corporate  autonomy.  It 
does  provide  that  the  Governor  shall,  with  the  consent  of  his-  Coun- 
cil, appoint  three  Directors  to  the  Board  of  Directors  of  any  Com- 
pany, accepting  the  act.  These  Directors  shall  have  all  the  powers 
of  any  directors,  and  if  the  Board  shall  have  any  Executive  Com- 
mittee, Finance  Committee,  or  any  other  Standing  Committee, 
one  such  Director  shall  be  a  member  thereof.  It  further  provides- 
that  the  by-laws  of  the  Company  shall  provide  for  monthly  meet- 
ings of  the  Board.     (Sec.  10.) 

Montreal 

No  direct  provision  for  corporate  autonomy,  although  this  is 
implied  by  the  terms  of  the  agreement.  The  Company  is,  how- 
ever, restrained  from  carrying  on  any  other  kind  of  business-  than 
that  provided  for  in  the  agreement  (Art.  27),  and  is  forbidden 
to  sell,  lease,  transfer  or  cede  any  part  of  its  systems,  or  the  rights 
conferred  upon  it  by  franchises*  or  agreements  (Art.  25). 

The  Company  shall  establish  and  maintain  its  plants,  work- 
shops and  principal  offices  within  the  City  limits  and  shall  build 
and  manufacture  within  the  City  limits  any  part  of  the  materials 
used  by  it,  which,  in  the  opinion  of  the  Commission  can  be  manu- 
factured advantageously  within  the  City  limits  (Art.  87). 

Eastern  Massachusetts 

The  autonomy  of  the  company  is  practically  surrendered.  Its 
shareholders  elect  a  Board  of  Directors,  but  the  Trustees  have  the 
right  to  appoint  and  remove,  at  their  discretion,  the  President, 
Vice-President,  Treasurer,  Clerk  and  all  other  officers  of  the  Com- 
pany, excepting  the  Board  of  Directors.  The  Trustees  are  author- 
ized by  the  Act  to  exercise  "  all  the  rights-  and  powers  of  the  New 
Company  and  its  Directors  and  shall  receive  and  disburse  its 
income  and  funds."     (Sec.  11.) 

The  consent  of  the  Board  of  Directors  to  contracts  for  con- 
struction, acquisition,  rental  or  operation  of  new  lines-,  or  the 
extension,  sale  or  lease  of  existing  lines,  is  necessary,  unless  the 
Public  Service  Commission  shall  determine  that  public  necessity 


90 


Service  At  Cost  Agreements 


and  convenience  requires  such  contracts  and  that  they  do  not  impair 
the  return  upon  securities  issued  under  the  authority  of  the  Act. 
(Sec.  12.) 

The  New  Company,  its  stockholders  and  Directors,  shall  be 
presumed  to  have  authorized  any  issue  of  securities  made  by  the 
Trustees  and  are  in  addition  required  to  give  their  formal  consent 
if  that  he  considered  necessary.     (Sec.  13.) 

Westerville 

There  are  no  specific  provisions  in  the  Grant  covering  the  ques- 
tion of  Corporate  autonomy.    There  are,  however,  no  restrictions. 

Dallas 

"The  Grantee  may  at  any  time  refund  its  bonds,  issue  securities 
(stocks  and  bonds,  or  either  of  them),  and  incur  such  indebtedness 
(and  at  its  option  issue  notes  therefor)  in  any  lawful  manner,  and 
to  any  lawful  extent  and  secure  the  payment  of  any  bonds  or  other 
indebtedness  by  a  mortgage  or  mortgages  on  the  property  of 
Grantee,  including  its  rights  under  said  lease  from  Northern 
Texas  Traction  Company,  or  any  part  thereof,  the  City  hereby 
conferring  upon  Grantee  all  necessary  authority  therefor ;  and  it 
is  expressly  agreed  that  in  dealing  with  the  Grantee,  its  success- 
ors and  assigns,  or  with  its  property,  the  City  shall  in  no  wise 
(except  in  case  of  purchase  by  the  City  or  a  Licensee  of  the  prop- 
erty operated  hereunder  and  then  only  as  hereinafter  provided)  , 
be  in  any  way  concerned  with  any  of  the  indebtedness  or  securi- 
ties of  the  Grantee,  but  shall  consider  and  be  concerned  only  with 
the  Property  Value  of  the  property  of  the  Grantee  as  herein 
defined,  which  Property  Value  shall  never  be  changed  by  the  City 
or  the  Grantee  except  pursuant  to  the  provisions  of  this  ordinance; 
provided,  however,  that  the  Grantee  shall  not  issue  bonds  or  other 
evidences  of  indebtedness  secured  by  a  lien  on  its  property  exceed- 
ing in  aggregate  par  value  eighty-five  per  cent  (85%)  of  the  Prop- 
erty Value.  The  City  covenants,  nevertheless,  that  it  will  from 
time  to  time  by  resolution  of  the  Board  of  Commissioners  give 
confirmatory  authority  for  or  certificate  of  approval  of  securities 
issued  or  to  be  issued  by  Grantee  whenever  requested  by  Grantee ; 


Service  At  Cost  Agreements 


91 


but  no  such  confirmation  or  approval  shall  ever  have  any  opera- 
tion or  effect  upon  the  Property  Value,  nor  affect  the  liability  or 
obligation  of  the  City  or  Licensee,  in  case  of  a  purchase  of  the 
Grantee's  property."     (Sec.  19.) 

The  rights,  privileges  and  franchises  conferred  by  the  Grant 
may  not  be  sold  or  assigned  without  the  consent  of  the  Board  of 
Commissioners.     (Sec.  44.) 

The  principal  offices  of  the  Company  shall  always  be  main- 
tained in  Dallas.     (Sec.  11.) 

The  Company  may  not  amend  the  lease  provided  in  the  Grant 
for  the  Dallas  Terminal  and  may  not  execute  a  new  lease.  Tt  may 
renew  and  extend  the  old  lease.     (Sec.  37.) 


Memphis 


No  provisions. 


2.--0F  SERVICE 

(a)  Within  Municipality 

Cleveland 
The  control  of  the  City  over  s-ervice  is  absolute,  except  that 
when  it  is  claimed  by  the  Company  that  the  service  required  by 
the  City  cannot  be  rendered  within  the  revenue  provided  by  the 
highest  rate  of  fare  provided  in  the  grant,  such  additional  service 
may  be  discontinued,  on  the  award  of  a  Board  of  Arbitration. 
The  language  of  the  grant  is : 

"  The  City  reserves  to  itself  the  entire  control  of  the  service, 
including  the  right  to  fix  schedules  and  routes,  including  routes 
and  terminals  of  interurban  cars,  the  character  of  the  cars,  the 
right  to  increase  or  diminish  the  service."     (Sec.  9.) 

Young  STOWN 
The  grant  reads :  "  The  City  reserves  to  itself  the  entire  con- 
trol of  the  service,  including  the  right  to  fix  schedules  and  routes, 
character  of  new  cars  and  the  right  to  increase  or  diminish  service 
*  *  *."  The  execution  of  the  right  is  lodged  in  the  City  Coun- 
cil, but  the  Commissioner  may  temporarily  approve  changes,  to 
be  effective  until  the  Council  otherwise  orders.     The  question  as 


^^ 


92 


Service  At  Cost  Agreements 


if 


to  whether  the  service  pres<!ribed  can  be  carried  out  under  existing 
rates  of  fare,  or  a  higher  rate  of  fare  is  subject  to  arbitration. 
(Sec.  6.) 

Cincinnati 
The  City  reserves  the  control  of  the  service  on  all  routes, 
including  the  right  to  fix  schedules  and  stopping  points,  the  type 
of  cars,  transfer  regulations  and  the  fixing,  changing  and  exten- 
sion of  routes.  The  prescriptions  of  the  City  shall  be  enforced  in 
any  court  of  competent  jurisdiction  and  the  Companies  may 
defend,  only  on  the  ground  that  the  requirements  of  the  City  are 
impossible  under  budget  allowances  if  the  Company  is  to  perform 
its-  corporate  obligations,  maintain  its  organization  and  perform 
the  duties  imposed  upon  it  by  the  Grant.  In  the  case  of  require- 
ments involving  capital  expenditure,  the  Company  may  defend 
upon  the  ground  that  acting  diligently  and  in  good  faith  it  is 
unable  to  provide  the  funds  required.     (Sec.  8.) 

m 

w 

BOSTOH- 

The  control  of  service  lies  entirely  with  the  Board  of  Trustees. 
The  act  provides  that  they  "  shall  determine  the  character  and 
extent  of  the  service  and  facilities  to  be  fumiehed,  and  in  these 
respects  their  authority  shall  be  exclusive  and  shall  not  be  subject 
to  the  approval,  control  or  direction  of  any  other  State  Board  or 
Conmiission."     (Sec.  2.) 

Massachusetts  (General) 
Except  as  the  Act  provides,  the  Companies  are  subject  to  the 
general  laws  of  the  State  relating  to  street  railway  companies. 
Control  and  regulation  of  service  is,  therefore,  lodged  in  the  State 
Public  Service  Commission.     (Sec.  1.) 

Montreal 
The  Montreal  Tramways  Commission  shall  determine  speed  of 
cars,  stopping  and  transfer  points,  service  and  frequency  of  serv- 
ice, and  may  allow  a  speed  in  excess  of  that  fixed  by  law  (Art. 
54).  The  Company  may  not  change  its  routes  without  the  con- 
sent of  the  Commission  (Art.  55).    It  may  not  operate  combined 


Service  At  Cost  Agreements 


9S 


passenger  and  freight  cars  without  the  consent  of  the  Commission 
(Art.  57).     The  Commission  shall  determine  the  number  of  pas- 
sengers that  each  car  may  accommodate  (Art.  63).     The  Com- 
mission may  establish  rules  for  the  transportation  of  freight, 
determine  the  character  of  the  freight  to  be  so  transported  and 
order  the  Company  to  establish  loading  and  unloading  places 
(Art.  83).     Establish  the  limits  of  average  density  per  car-mile 
(Art.  92,  Par.  1).     The  Company  may  not  allow  the  use  of  its 
tracks  by  another  company,  or  connect  its  tracks  with  those  of 
another  company  without  the  cons-ent  of  the  Commission  (Art. 
28) ;  width  of  space  between  tracks,  radius  of  track  curvature  on 
streets,  projection  of  ties  outside  rails,  width  of  rolling  stock, 
types  of  cars  and  their  accessories,  type  and  location  of  poles, 
location  of  tracks  in  streets,  weight  and  type  of  rails,  stop  signs, 
lighting  and  heating  of  cars,  weight  of  both  passenger  and  freight 
cars,  maximum  permissible  load  of  freight  cars,  numbering  of 
cars  and  number  of  cars  per  train  are  subject  to  the  approval  of 
the  Commission  (Art.  53).    The  Commission  shall  locate  transfer 
points  at  which  agents  are  to  be  placed  by  the  Company  and  indi- 
cate agent's  duties  (Art.  56).    The  Commission  shall  approve  the 
placing  of  illuminated  route  and  destination  signs  on  all  cars 
(Art.  61). 

The  agreement  itself  requires  that  conductors  and  agents  speak 
English  and  French  and  call  in  both  languages  the  names  of 
streets  (Art.  59)  ;  shall  provide  each  car  with  a  gong  (Art.  60)  ; 
shall  ventilate  and  keep  clean  its  cars  (Art.  62). 

Eastern  Massachusetts 
The  Trustees  shall  determine  the  character  and  extent  of  the 
service  and  the  facilities  to  be  furnished.  Their  authority  in  this 
respect  is  exclusive,  as  to  joint  service  with  connecting  companies 
other  than  with  the  Boston  Elevated  Railway  Company,  in  which 
instance  the  Public  Service  Commission  has  authority.  Upon  the 
request  of  the  Mayor  of  a  City,  the  selectmen  of  a  town,  or  twenty 
of  the  patrons  of- the  road,  the  Trustees  must  hold  a  public  hearing 
for  the  presentation  of  complaints  as  to  service,  but  after  such 
hearings  they  may  take  such  action  in  the  premises  as  they  see  it 
(Sec.  11.) 


94 


Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


05 


Westervillb 
The  Commission  has  control  of  service,  including  the  alteration 
of  schedules,  the  increasing  and  diminishing  of  service  and  the 
estahlishment  of  stops.  The  Commission  shall  not  require  service 
to  an  extent  which  will  not  produce  revenue  sufficient  to  make 
good  loss  in  Working  Capital.  When  the  Grant  has  less  than 
fifteen  years  to  run,  and  until  it  shall  he  renewed  for  not  less  than 
fifteen  years,  control  of  the  service  shall  rest  with  the  Company. 
(Sec.  7.) 

Dallas 

The  Commission  shall  decide  the  design  and  equipment  of  cars 
and  has  the  power  to  order  improvements  therein,  to  the  end  that 
they  shall  he  safe,  comfortahle  and  convenient;  it  shall  prescribe 
schedules  and  stops.  If  the  Company  contends  that  any  order  pre- 
scribing service  jeopardize  the  ability  of  the  Company  to  earn, 
at  the  highest  permissible  rate  of  fare,  the  return  to  which  the 
Company  is,  under  the  Grant,  entitled,  the  question  as  to  whether 
such  orders  shall  be  enforced  shall  be  arbitrated,  but  the  decision 
of  the  Arbitration  Board  shall  not  prevent  the  City  from  exer- 
cising such  control  over  service  as  is  given  to  it  by  the  provisions 
of  the  City  Charter.     (Sec.  10.) 

'No  trackg,  or  operation  thereon,  shall  be  abandoned  without 
the  consent  of  the  Board  of  Commissioners.    (Sec.  30.) 

Memphis 

The  State  Eailroad  and  Public  Utilities  Commission  has  ex- 
clusive control  of  the  service.  The  service  at  cost  order  provides 
that  until  further  ordered  the  Company  shall  provide  each  month, 
not  less  than  .155  nor  more  than  .185  passenger  car  miles  for  each 
revenue  passenger  carried. 

(b)  Ontdde  of  MnnidpaHt^ 

Cleveland 

The  Company  shall  perform  existing  contracts  with  commu- 
nities outside  of  the  City  limits,  but  shall  not  increase  service 
above,  or  reduce  fares  below  the  requirements  of  such  contracts. 
In  case  of  dispute  as  to  such  requirements,  the  matter  shall  be 


decided  by  arbitration  if  the  outside  community  affected  consents, 
the  City  to  appoint  one  arbitrator,  the  community  another  and  the 
third  to  be  appointed  as  in  the  case  of  other  Arbitration  Boards. 
(See  C-6-(a).)     (Sec.  29.) 

YOUNQSTOWN 

The  Company  is  given  the  right  to  operate  interurban,  sub- 
urban, freight  and  supply  cars  over  the  city  tracks,  upon  payment 
of  the  actual  cost  per  car-mile  for  power,  maintenance,  repair  and 
renewal  of  track  as  determined  for  city  cars,  plus  interest  on 
investment  and  taxes.    In  the  event  of  the  purchase  of  the  prop- 
erty by  the  city,  it  is  agreed  that  provision  shall  be  made  for  a 
continuance  of  these  rights  for  a  period  of  at  least  25  years.    The 
interurban  and  suburban  cars  of  the  Company,  shall  not  carry 
passengers  to  and  from  points  in  the  city  unless  directed  to  do  so 
by  the  Commissioner.     Damages  resulting  from  the  operation  of 
such  cars  shall  be  paid  by  the  Company,  but  the  relative  liability 
for  such  accidents  shall  be  determined  and  the  portion  adjudged 
to  be  due  to  the  property  or  employes  of  the  city  lines  shall  be 
paid  to  the  Company  out  of  operating  expenses,  the  apportionment 
to  be  made  by  the  Company,  the  Commissioner  and  the  City 
Solicitor.     In  the  event  of  a  disagreement  it  shall  be  arbitrated. 
Repairs  to  cars  and  equipment  not  included  in  city  property  may 
be  made  by  the  Company  in  the   Haselton   Shops,   work  and 
materials  to  be  supplied  at  actual  cost,  to  be  paid  each  month. 
At  the  end  of  each  six  months,  the  Company  shall  pay  into  gross 
receipts  from  city  operation  an  agreed  upon  amount  for  overhead 
and  maintenance.     (Sees.  11-B  and  11-E.) 

The  Company  agrees  to  permit  the  operation  of  city  cars  over 
the  Youngstown  and  Sharon  Line  (a  suburban  line),  at  the  same 
charge  per  car-mile  as  is  agreed  upon  for  the  operation  of  inter- 
urban and  suburban  cars  over  city  lines.     (Sec.  11-E.) 

The  type  of  all  suburban,  interurban,  supply  and  freight  cars 
used  by  the  Company,  shall  be  subject  to  the  approval  of  the  city. 

Cincinnati 
No  provision& 

Boston 

Powers  of  Trustees  extend  over  entire  system. 


96 


Sebvice  At  Cost  Agreements 


Massachusetts  (General) 
Public  Service  Commision  has  jurisdiction. 

Montreal 
The  same  control  is  exercised  by  the  Commission  outside  of  the 
city  of  Montreal  as  in  the  city,  except  that  the  right  of 
municipalities  outside  of  the  City  to  exact  the  routes  and  fre- 
quency of  service  to  which  they  are  entitled  by  their  contract  with 
the  Company  is  provided  for  (Art.  34). 

Eastern  Massachusetts 
Powers  of  Trustees  extend  over  entire  system. 

Westerville 

The  cx>ntrol  of  the  Commission  is  over  all  service  in  Franklin 
County.  The  Commission  has  no  control  over  such  portions  of  the 
Company's  lines  as*  are  situated  in  the  city  of  Columbus,  Ohio. 

Daixas 
Control  exercised  by  Commissioners  extends  to  lines  outside  of 
City  Limits. 

Memphis 

The  Utilities  Commission  exercises  jurisdiction  irrespective  of 
municipal  limits. 

S.— OF  CONSTRUCTION,  MAINTENANCE  AND  REPAIRS 


No  provisions. 
No  provisions. 
No  provisions. 
No  provisions. 

No  provisions. 


Cleveland 
youngstown 
Cincinnati    - 
Boston 

Massachusetts  (General) 


Service  At  Cost  Agreements 


97 


Montreal 

"  The  Company,  on  the  order  of  the  Commission  and  within 
the  delay  fixed  by  it,  shall  make  to  its  lines,  to  the  pavements 
imder  its  care,  to  its  rolling  stock  or  to  anything  else  pertaining 
to  its  system,  either  within  or  without  the  limits  of  the  City,  all 
necessary  modifications,  additions,  reconstructions,  alterations  or 
repairs"  (Art.  38). 

The  Commission  is  empowered  to  adjudge  that  a  line  or  a  part 
of  a  line  is  useless  and  order  the  Company  to  remove  track,  line 
and  other  appurtenances'  and  to  reconstruct  pavement  and  side- 
walks. If  the  Company  is  negligent  in  carrying  out  such  order, 
the  municipality  affected  may,  with  the  consent  of  the  Commis- 
sion, do  the  work  and  charge  the  cost  to  the  Company  (Art.  39). 
The  Commission  shall  approve  the  type  of  rail,  other  than  T-rail 
(the  use  of  which  is  forbidden)  to  be  substituted  in  streets  about 
to  be  paved  with  any  other  than  plain  macadam  pavement  (Arts. 
43,  52).  The  Commission  shall  direct  the  resetting  of  poles  and 
tracks,  in  the  case  of  street  widening  (Art.  44). 

The  City  Engineer  shall  set  the  grades  to  be  used  in  track  con- 
struction in  conformity  vsdth  the  street  grades  (Art.  39).  The 
City  shall  specify  the  kind  of  pavement  to  be  used  replacing  pave- 
ment torn  up  for  track  construction  or  reconstruction,  except  that 
if  the  pavement  specified  exceed  in  cost  that  removed,  the  Com- 
pany may  recover  the  difference  from  the  City  (Art  41).  The 
Company  is  compelled  to  provide  drainage  for  its  tracks,  subject 
to  the  approval  of  the  City  Engineer  (Art.  50). 


No  provisions. 


No  provisions. 


No  provisions. 


No  provisions. 


Eastern  Massachusetts 


Westerville 


Dallas 


Memphis 


98 


Sebvice  At  Cost  Agbbements 


f 


4.— OP  EXTENSIONS,  BETTERMENTS   AND   PERMANENT   IMPROVE- 
MENTS 

(a)  Deflnitioiis 

Cleveland 
Extensions,  Betterments  and  Permanent  Improvements,  in  con- 
tradistinction to  Maintenance,  Kenewals  and  Replacement  are 
defined  to  mean : 

The  acquisition,  construction  and  equipment  of  additional  Imes 
of  street  railway,  power  housee,  switches,  sidings,  car  houses, 
shops,  rolling  stock,  machinery  and  other  property,  or  additions 
to  existing  equipment,  or  difference  between  new  cost  of  new 
sources  of  power,  or  new  methods  of  propulsion,  and  the  cost  of 
the  source  of  power  or  method  of  propulsion  replaced,  if  new  at 
the  time  of  replacement,  and  all  expenses  incident  to  such  con- 
struction and  acquisition ;  and  also,  whenever  any  property  of  the 
company  is  replaced  by  other  property  at  a  greater  cost  than  would 
be  the  first  cost  of  such  property,  if  purchased  at  the  time  of 
replacement,  then  such  excess  cost  shall  be  deemed  an  Extension, 
Betterment  or  Permanent  Improvement  within  the  meaning  of 
those  words  as  used  in  this  ordinance.     (Sec.  26.) 

Toitngstown 
Betterments,  Extensions  and  Permanent  Improvement  in  con- 
tradistinction to  Maintenance,  Repairs  and  Renewals  are  defined 
to  be: 

The  acquisition,  construction  and  equipment  of  additional  lines 
of  street  railway,  switches,  power  houses,  sidinge,  car  houses, 
shops,  rolling  stock,  machinery,  stations  and  other  property  or 
additions  to  existing  lines  and  equipment.  It  ehall  also  be  held 
to  mean  and  include  the  difference  between  cost  of  new  sources  of 
power  and  method  of  propulsion,  and  the  cost  of  the  sources  of 
power  and  method  of  propulsion  replaced  as  if  the  same  were  new 
at  the  time  of  replacement,  and  all  expense?  incident  to  such  con- 
struction and  acquisition,  and  also  whenever  any  property  of  the 
Company  is  replaced  by  other  property  at  a  greater  cost  than 
would  be  the  cost  of  such  property  so  superseded  or  replaced,  if 


Service  At  Cost  Agreements 


99 


purchased  at  the  time  of  replacement,  then  such  excess  cost  shall 
be  deemed  a  Betterment,  Extension  of  Permanent  Improvement 
within  the  meaning  of  those  words  as  used  in  this  ordinance. 

Cincinnati 
The  grant  contains  no  definition  of  Extensions,  Betterments  and 
Permanent  Improvements,  excepting  that  the  I.  C.  C.  Uniform 
System  of  Accounts  is  prescribed. 

Boston 

The  act  contains  no  definition  of  Extensions,  Betterments  or 
Permanent  Improvements. 

Massachusetts  (General) 

The  Act  contains  no  definition  of  Extensions,  Betterments  and 
Permanent  Improvements. 

Montreal 
There  is  no  definition  of  either  Extensions,  Betterments  or 
Permanent  Improvements  contained  in  the  agreement. 

Eastern  Massachusetts 
The  Act  contains  no  definition  of  Extensions,  Bettermer.t«  and 
Permanent  Improvements. 

"Westerville 

The  Grant  contains  no  definitions  of  Extensions,  Betterments 
and  Permanent  Improvements. 

Dallas 
"  The  words  ^  extensions,  betterments  and  improvements  *  are 
used  in  contradistinction  to  repairs  to  and  maintenance,  renewals 
and  replacements  of  property.  They  shall  be  held  to  mean  and 
include  additions  to  or  betterments  of  existing,  and  acquisitions, 
construction,  additions  to  or  betterments  of  new  lines  of  street 
railway  tracks,  switches,  sidings,  overhead  trolley  and  feeder  sys- 
tems, signal  systems,  street  paving,  street,  sidewalk  and  other 
special  or  local  improvements,    power   houses,    substations,    eai 


100 


Sebvice  At  Cost  Agreements 


bmses,  shops,  machinery,  rolling  stock,  tools,  appliances,  miscel- 
laneous equipment,  transmission  lines,  real  estate,  buildings  and 
oUier  property,  including  additional  track,  or  tracks  on  streets  or 
places  at  any  time  occupied  by  track  or  tracks  operated  hereunder:- 
and  w.tho,,t  hmitation  by  the  preceding  enumeration,  general^ 
shall  include  all  expenditure,  not  properly  chaigeable  to  operating 
^penses  or  not  properly  chargeable  to  or  paid  out  of  the  Repair 
Maintenance  and  Depreciation  Reserve,  but  shall  not  include  any 
interest  on  the  Grantee's  indebtedness  other  than  interest  during 
construction  as  herein  provided."     (See.  1.) 

«  The  word  '  extensions '  (as  distingiiished  from  betterments 
and  improvements)  shall  be  held  to  mean  and  include  new  or  ad- 
nitional  street  railway  lines."     (Sec.  1.) 


Sebvice  At  Cost  Aobbembnts 


101 


No  definition. 


Memphis 


(b)  Within  Mnnicipalil^ 

Cleveland 
Extensions,  Betterments  and  Permanent  Improvements,  may  be 
proposed  by  either  the  City  or  the  Company.  If  proposed  by  the 
Company,  they  must  be  approved  by  the  City,  if  the  Cost  ie  to  be 
added  to  Capital  Value.  If  proposed  by  the  City,  thev  must  be 
earned  out  by  the  Company,  unless  a  Board  of  Arbitration  shall 
decide  that  the  ability  of  the  Company  to  earn  its  fixed  return  is 
J«.pard,zed,  or  that  the  Company  is  unable  to  finance  them, 
(oec.  27.) 

The  City  has  the  right  of  supervision  over  the  construction  of 
all  eTtensions,  betterments  and  permanent  improvements.     (Sec. 

YoUNGSTOWir 

The  Companj  agrees  to  provide  and  spend  within  Rye  years 
for  aich  Extensions,  Betterments  and  Permanent  Improvements 
as  tue  iAtj  may  designate  the  sum  of  $750,000.     (Sec  IS-A  ) 

Betterments,  Extensions  and  Permanent  Improvements  may  be 
proposed  by  either  the  City  or  the  Company.  If  the  cost  of  those 
proposed  by  the  Company  is  to  be  charged  to  Capital  Value,  they 
must  be  approved  by  the  City.  If  proposed  by  the  City,  or  ap- 
proved by  the  Cily,  they  shall  be  carried  out  by  the  Company  S 


the  Company  can  procure  by  the  sale  of  its  securities,  or  by  an 
increase  in  its  floating  debt,  the  necessary  funds ;  unless,  the  Com- 
pany shall  claim  that  the  carrying  out  of  the  plans  will  impair  its 
present  or  future  ability  to  earn  the  return  stipulated  in  the  grant, 
or  that  it  is  unable  to  finance  the  plan  at  the  return  allowed  by  the 
City.  These  contentions  are  subject  to  arbitration.  (Sees.  15-B 
and  15-C.) 

The  Commissioner  shall  have  the  right  to  check  all  estimates 
made  by  the  Company  for  Extensions,  Betterments  and  Improve- 
ments and  shall  supervise  the  work  of  carrying  out  the  plans. 
He  may  incur  any  necessary  expenses  in  preparing  estimates  for 
the  City.  If  the  plans  are  actually  carried  into  effect,  the  ex- 
penses so  incurred  shall  become  a  part  of  the  capital  cost  of  such 
undertaking  and  shall  be  paid  by  the  Company,  provided  they  do 
not  exceed  one-half  of  one  per  cent  of  the  total  cost.  If  the  en- 
terprise is  not  carried  out  such  expenses  shall  be  paid  as  an 
operating  cost.     (Sec.  15-D.) 

Cincinnati 

The  provisions  of  the  Grant  covering  the  making  of  Extensions, 
Betterments  and  Permanetnt  improvements,  reads: 

"  Changes  of  routes  and  extensions-  thereof  and  new  and  addi- 
tional lines  of  roads  or  routes  shall  be  made  by  the  Companies 
when  ordered  by  ordinance  of  the  Council  if  and  when  Council 
may  be  empowered  to  require  the  same  under  the  terms  of  this 
Ordinance,  Charter  of  the  City  and  Laws  of  the  State  of  Ohio." 
(Sec.  8.) 

"All  new  construction,  reconstniction,  renewal,  replacement  and 
repair  of  routes  made  by  the  Companies  in  or  upon  the  streets, 
avenues,  alleys,  public  ways  and  grounds  of  the  City  shall  be  done 
in  conformity  with  the  ordinances  of  the  City  now  in  force  and 
effect  or  which  may  hereafter  be  passed  and  enacted  regulating  or 
respecting  the  opening,  closing  and  repairing  of  the  streets,  etc., 
tracks  and  other  construction  made  after  the  taking  effect  of  the 
grant,  shall  be  of  a  type  approved  by  the  proper  boards  of  officers 
of  the  city,  before  permits  for  such  construction  or  reconstruction 
shall  be  issued."     (Sec.  ^,) 


Sebvice  At  Cost  Agbeements 


t  • 


1 1 


9; 


]{■ 


I 


Service  prescribed  by  the  City,  which  involves  capital  expendi- 
ture, may  be  objected  to  by  the  Companies,  in  which  case  the  City 
may  prosecute  an  action  in  any  court  of  competent  jurisdiction, 
for  enforcement  of  its  orders,  and  the  Companies  may  defend  only 
upon  the  ground  that  in  good  faith  and  using  all  usual  means  it 
's  unable  to  finance  the  preecribed  expenditures.     (Sec.  8.) 

Boston 
The  State's  control  is  complete,  except  that  contracts  for  the 
operation  or  lease  of  subways,  elevated  or  surface  lines,  or  exten- 
sions thereof  beyond  their  present  limits,  may  not  be  made  if  they 
involve  the  payment  of  rentals  or  other  compensation  by  the  Com- 
pany, after  the  period  of  management  and  control  by  the  State, 
unless  consented  to  by  the  Company's  Board  of  Directors.  How- 
ever, surface  lines  may  be  constructed,  or  purchased,  beyond  the 
limits  of  existing  lines  even  should  the  Board  of  Directors  refuse, 
if  after  a  public  hearing,  the  Board  of  Trustees  decide  that  pub- 
lic necessity  and  convenience  requires  their  construction  or  opera- 
tion. This  power  lapses,  when  the  Commonwealth  has  passed 
legislation  providing  for  the  termination  of  public  control  and 
operation.     (Sec.  3.) 

Massachusetts  (General) 

(This  Act  provides  for  State  control,  regardless  of  municipal 
boundaries) : 

Except  as  the  Act  provides,  the  Companies  are  subject  to  the 
general  laws  of  the  State  relating  to  street  railway  companies. 
Therefore,  there  is  only  such  control  over  extensions,  betterments 
and  improvements  as  was  lodged  in  the  Commission,  previous  to 
the  passage  of  the  Act  (Sec.  1),  except  as  to  improvements  made 
under  the  provisions  for  a  special  Improvement  Fund,  in  amount 
required  by  the  Public  Service  Commission,  but  not  to  exceed  five 
per  cent,  of  Capital  Investment,  raised  through  the  sale  of  bonds, 
«tock,  or  preferred  stock,  and  fully  subscribed  within  sixty  days 
after  the  determination  of  Capital  Investment.  The  plan  for  the 
expenditure  of  this  fund  shall  be  prepared  by  the  Company  and 
submitted  to  and  approved  by  the  Commission.     (Sec.  8.) 


Service  At  Cost  Agreements 


103 


Montreal 

"  In  its  operation,  the  Company  shall  be  on  the  look-out  for  all 
improvements  and  betterments  relating  to  any  part  whatever  of  its 
system,  both  within  and  without  the  limits  of  the  City,  including 
its  rolling  stock,  as  may  prove  to  be  of  recognized  advantage,  and 
it  must  adopt  the  same  when  so  ordered  by  the  Commission  and 
within  the  delay  fixed  by  it "  (Art.  32). 

The  Company  was  compelled  to  construct  certain  specified 
double-track  lines  during  the  first  year  in  which  the  agreement 
was  in  force  (Art.  33). 

The  Company  is  compelled  to  build  and  operate  any  lines,  pro- 
posed by  the  City,  by  any  municipality  outside  the  City,  or  by 
itself,  if  the  Commission  decides  that  such  lines  are  required  by 
the  needs  of  population  and  of  traffic  and  if  general  financial  con- 
ditions permit.  The  Commission  of  its  volition  may  require  the 
construction  and  operation  of  any  new  line,  which  it  deems  neces- 
sary, if  general  financial  conditions  permit.  In  each  case  the 
Commission  shall  fix  the  time  within  which  the  work  shall  be  com- 
pleted (Art.  34).  The  Company  may  not  construct  any  new  line 
without  the  authorization  of  the  Commission  (Art.  35).  The 
Commission  may  order  modifications,  additions,  alterations,  re- 
constructions or  repairs  to  lines,  pavement,  rolling  stock,  or  any- 
thing else  pertaining  to  the  Company's  system  (Art.  38). 

Eastern  Massachusetts 
In  the  case  of  contracts  for  the  construction,  acquisition,  rental 
or  operation  of  new  lines,  or  the  extension  of  existing  lines,  the 
consent  of  the  Board  of  Directors  of  the  Company  is  necessary, 
unless  the  Public  Service  Commission  shall  decide  that  public 
convenience  and  necessity  require  the  extension  and  that  the  re- 
turn upon  securities,  issued  under  the  authority  of  the  Act,  will 
not  be  impaired.  The  right  of  appeal  to  the  Supreme  Judicial 
Court  of  Appeals  rests  with  the  Company.     (Sec.  12.) 

Westervilxb 
^  The  Company  is  required  to  rebuild  a  certain  portion  of  its 
line,  in  accordance  with  the  specifications  for  "boulevard  con- 
struction," as  set  forth  in  the  Grant,  at  such  time  as  the  Commis- 
sions shall  improve  the  highway  in  which  the  tracks  of  the  Com- 
pany are  located.     (Sees.  6  and  14.) 


104 


.  Sebvice  At  Cost  Agbeements 


All  other  Extensions,  Betterments  and  Permanent  Improve- 
ments, may  be  proposed  by  either  the  Commissioners  or  the  Com- 
pany.  If  proposed  by  the  Company,  they  must  be  approved  by 
the  Commissions,  if  the  cost  is  to  be  added  to  Capital  Value.  If 
proposed  by  the  Commissioners  they  must  be  carried  out  by  the 
Company,  unless  a  Board  of  Arbitration  shall  decide  that  the 
ability  of  the  Company  to  earn  its  fixed  return  is  jeopardized,  or 
that  the  Company  is  unable  to  finance  them.     (Sec.  14.) 

Dallas 
Extensions  may  be  ordered  by  the  City  or  proposed  by  the  Com- 
pany.    The  order  or  proposal  shall  be  accompanied  by  a  requisi- 
tion, setting  forth  in  reasonable  detail  the  cost  of  the  proposed  pro- 
ject,  and  if  necessary  to  a  dear  understanding  the  Grantee  ehall 
furnish  specifications  and  plans  in  further  detail.     In  the  case  of 
"  Extensions,"  as  distinguished  from  "  Betterments  and  Improve- 
ments,'* approval  must  be  given  by  the  Board  of  Commissioners. 
In  the  case  of  «  Betterments  and  Improvements,"  the  Supervisor 
may  act  if  he  so  desires  without  approval  of  the  Board.     The 
Supervisor  or  Commissioners,  as  the  case  may  be,  must  within 
thirty  days  from  the  receipt  of  the  requisition,  either  approve  or 
disapprove  it.     Failure  to  act  within  thirty  days  shall  be  taken  as 
approval.     The  Company,  before  proceeding  with  work,  is  re- 
quired, if  necessary,  to  secure  the  approval  of  abutting  property 
owners.     If  the  Company  contends  that  any  Extension,  Better- 
ments or  Improvement  ordered  by  the  City  with  jeopardize  its 
ability  to  earn  the  stipulated  Return  under  the  highest  fare 
allowed  by  the  Grant,  the  matter  of  making  the  proposed  Exten- 
sion, Betterment  or  Improvement  shall  be  arbitrated.  Ko  decision 
of  an  Arbitration  Board  shall,  however,  relieve  the  Company  from 
its  obligation  to  constnict,  not  to  exceed  two  miles  of  line  per 
year,  when  ordered  so  to  do  by  the  City  under  a  State  law  cover- 
ing the  question,  nor  to  relieve  the  Company  from  its  obligation  to 
expend  under  the  direction  of  the  City  $1,000,000  for  Extensions, 
Betterments  and  Improvements  within  eighteen  months  after  the 
taking  effect  of  the  Grant  as  required  by  the  Grant.     (Sees.  2  and 
27.) 


Service  At  Cost  Agreements 


105 


When  in  case  of  accident  or  emergency  it  is  impracticable  to 
submit  requisitions  prior  to  the  making  of  Extensions,  Better- 
ments and  Improvements,  the  Company  shall  within  sixty  days 
after  the  work  is  completed  file  in  complete  detail  a  requisition 
therefor.  This  shall  be  approved  or  disapproved  by  the  Super- 
visor or  Commission  within  fifteen  days,  and  of  the  City  and  Com- 
pany fail  to  agree  thereon  shall  be  submitted  to  Arbitration. 
(Sec.  27.) 

When  the  City  limits  are  extended,  so  as  to  bring  within  the 
same,  portions  of  the  Company's  lines  formerly  outside,  the  con- 
struction, maintenance  and  operation  of  the  lines  so  included  shall 
be  under  the  terms  of  the  Grant  subject  to  existing  mortgages  and 
other  liens,  and  the  Company  shall  surrender  its  rights  to  operate 
under  and  other  franchise.     (Sec.  2.) 


Memphis 

The  Utilities  Commission  has  the  control  granted  it  by  the 
general  statutes  of  the  State. 

*  (c)  Outside  of  Muxdcipality 

Clevelaistd 

The  cost  of  Extensions,  Betterments  and  Permanent  Improve- 

•   ments  to  Suburban  Lines,  can  be  added  to  Capital  Value,  only  by 

agreement  with  the  City,  and  when  such  extensions,  betterments 

and  permanent  improvements  will  be  self  sxipporting.     (Sec.  29.) 

YOUNGSTOWN^ 

There  is  no  provision  in  the  grant  covering  Extensions,  Better- 
ments and  Improvements  outside  of  the  Municipality,  these  being 
within  the  discretion  of  the  Company. 


CiNCINH'ATI 

There  is  no  provision  in  the  grant 


BOSTOIT 

Powers  of  Trustees  extend  over  entire  system. 


loe 


1 1 


Lit 


i 


Sebvicb  At  Cost  Agreements 


Massachusetts  (General) 

The  act  provides  for  State  control,  regardless  of  municipal 
boundaries. 

MONTBEAL 

Tlie  powers  of  the  Commission,  in  regard  to  extensions,  better^ 
ments  and  permanent  improvements,  extend  over  the  entire  sys- 
tem, witli  the  proviso  that  outside  of  "  Uniform  Tariff  "  territory 
(eee  F-1)  "  the  cost  of  construction  of  any  new  line  or  the  exten- 
eion  of  any  existing  line,  or  of  their  operation^  shaU  not  be  a 
burden  on  the  revenues  of  the  Company  in  the  sense  that  the 
revenues  of  such  lines  must  be  sufficient  so  as  not  to  affect  unjustly 
the  passenger  and  freight  tariff  on  the  other  parts  of  the  Com- 
pany's system"  (Art.  36). 

Eastern  Massachusetts 
Powers  of  the  Trustees  extend  over  entire  system. 

Westebville 
Commission  has  no  control  outside  Franklin  County. 

Dallas 
"  No  Extensions,  Betterments  and  Improvements  outside  of  the 
then  City  limits,  unless  required  by  law,  shall  be  made,  except 
with  the  formal  consent  of  the  City  expressed  by  ordinance  or 
resolution  of  the  Board  of  Commissioners ;  and  in  any  event  the 
same  shall  be  made  under  the  supervision  of  the  City,  as  pro- 
vided herein  for  Extensions,  Betterments  and  Improvements 
within  the  City  limits.  In  the  event  that  such  Extensions,  Bet- 
terments and  Improvements  outside  of  the  City  limits  are  required 
by  law,  the  Grantee  shall  have  the  right  to  add  the  cost  thereof  to 
Property  Value."     (Sec.  27.) 

Memphis 

The  IJtilities  Commission  has  the  control  granted  it  by  the 
general  statutes  of  the  State. 


Service  At  Cost  Agreements 


107 


5.—  OF  CAPITALIZATION,  FINANCES  AND  ACCOUNTS 

(a)  Ordinary  Expenses 

Cleveland 

The  operating  allowance.  Maintenance,  Depreciation  and  Ee- 
newals  allowance  and  return  upon  Capital  value  is  fixed  by  the 
grant.     (Sees.  15,  18,  19.) 

No  expenditure  for  renewals  and  replacements  may  be  made 
from  the  Maintenance,  Renewals  and  Replacement  funds,  without 
the  approval  of  the  City.     (Sec.  20.) 

YOUNGSTOWN 

The  allowances  for  Operation,  Maintenance,  Repair  and  Re- 
newals, and  for  Return  upon  Capital  Value  are  fixed  by  the  grant. 
(Sees.  11,  11-A,  12,  12-A,  and  10-E.) 

No  renewal  or  replacement  charge  to  the  Maintenance,  Repair 
and  Renewal  Account  shall  be  made  without  the  consent  of  the 
City  Council,  or  the  Commissioner  when  authorized  to  approve 
puch  charges  by  the  City  Council.  Disagreements  are  subject  to 
arbitration.     (Sec.  12-a.) 

The  salaries  of  all  officials,  the  whole  or  any  part  of  whose 
salary  is  paid  from  the  receipts  of  the  City  system,  are  subject  to 
the  approval  of  the  Commissioner.  In  case  of  disagreement  the 
dispute  shall  be  settled  by  arbitration.     (Sec.  11-Da.) 

Cincinnati 
The  operating  expenses  are  fixed  in  a  budget,  which  is  subject 
to  the  approval  of  the  City.     (Sec.  8.)     Other  items  of  expense . 
are  fixed  by  the  teims  of  the  grant. 


>l 


1' 


i( 


Boston 
Control  complete  (Sec.  2.) 

Massachusetts  (General) 
The  Act  provides  for  no  further  supervision  and  control  over 
expenses  than  is  now  exercised  by  the  Public  Service  Commission. 


I 


108 


Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


109 


Montreal 
The  Commission  has  no  direct  jurisdiction  over  the  ordinary 
expenses  of  the  Company.  If  the  operating  allowance  be  ex- 
ceeded hy  more  than  two  and  one-half  per  cent,  the  Commission  is 
empowered  to  disallow  any  expenses  which  it  considers  to  have 
Keen  unnecessary,  and  the  amount  so  disallowed  shall  be  taken 
from  the  guarantee  fund    (See  H-2)  (Art.  92,  Par.  1). 

Eastern  Massachusetts 
Control  complete.     (Sees.  11,  13.) 

Westervillb 

The  Commissioners,  if  they  consider  the  proportion  of  expenses 
for  salaries  and  other  expenses,  charged  to  the  Westerville  di- 
vision hy  the  Company  to  be  excessive,  may  demand  that  the  ques- 
tion be  submitted  to  arbitration,  in  which  event  the  award  of  the 
Arbitration  Board  shall  prevail.     (Sec.  13-c.) 

There  is  no  other  provision  for  direct  control  of  expenses,  ex- 
cept that  the  items  which  shall  constitute  the  cost  of  the  service 
are  defined.     (Sec;  13.) 

Daluis 

It  ie  the  duty  of  the  Supervisor  to  keep  informed  as  to  the  ex- 
penditures of  the  Company  for  salaries,  supplies  and  other  costs 
of  operation  and  if  in  his  opinion  the  methods  of  the  Company 
are  wasteful,  he  shall  notify  the  Company  that  wastefulness  exists 
in  the  purchase  or  use  of  materials  or  employment  of  persons  or 
their  compensation  or  in  any  other  matter  connected  with  the 
business,  and  after  an  investigation,  the  cost  of  which  shall  be 
paid  by  the  Company,  he  may  further  notify  the  Company  as  to 
the  ways  in  which  such  wastefulness  occurs  and  his  suggestions 
for  ite  correction.  In  the  event  of  a  disagreement  between  the 
Supervisor  and  the  Company,  as  to  the  existence  of  such  wasteful- 
ness or  the  method  of  its  correction,  the  matter  shall  be  submitted 
to  Arbitration.     (Sec.  29.) 

Memphis 
The  Utilities  Commission  has  such  jurisdiction  as  is  granted  it 
by  the  general  statutes  of  the  State. 


(b)  Seciuities 

m 

Cleveland 
The  sale  of  stocks  and  bonds,  to  be  added  to  Capital  value,  may 
be  made  only  with  the  consent  and  approval  of  the  City.     (Sec. 
15.) 

Youngstown 
The  sale  of  stocks,  bonds  and  the  incurring  of  floating  debt,  to 
be  added  to  capital  value,  shall  be  subject  to  the  approval  of  the 
city.     (Sec.  10-B.) 

Cincinnati 
The  City  shall  approve  the  amount  and  character  securities,  the 
rate  of  interest  or  dividend,  sinking  fund  provisions,  and  the  price 
at  which  such  securities  may  be  sold.     (Sec.  22.) 

Boston 

The  Trustees  have  authority  to  make  contracts  in  the  name  of 
the  Company  and  to  issue  stocks,  bonds  and  other  evidences  of  in- 
debtedness in  its  behalf.      (Sec.  3.) 

In  spite  of  the  fact  that  the  Company,  by  the  acceptance  of  the 
act,  have  consented  to  this  power  being  lodged  in  the  Board  of 
Trustees,  the  Board  of  Directors  are  required  by  the  provisions 
of  the  act  to  take  such  action,  as  they  may  be  requested  to  by  the 
Board  of  Trustees  to  validate  its  acts  in  relation  to  the  issuance 
of  securities.     (Sec.  4.) 

Massachusetts  (General) 
The  investment  upon  which  return  is  allowed  is  fixed  by  the 
Public  Service  Commission.  (Sees.  2,  4.)  Existing  law  pro- 
vides the  conditions  under  which  new  securities  may  be  issued  and 
includes  supervision  and  control  by  the  Public  Service  Commis- 
sion. 

Montreal 
N'ew  Capital,  upon  which  return  is  allowed,  needed  for  pur- 
poses, approved  by  the  Commission,  shall  be  borrowed,  if,  in  the 
judgment  of  the  Commission,  their  condition  permits,  from  the 
Contingent  Keserve  Fund  (see  F-2)  and  from  the  Maintenance 
and  Renewals  Fund  (see  E-3-b-61),  and  from  the  Tolls  Reduc- 
tion Fund  (see  F-2).  Moneys  so  borrowed  shall  be  reimbursed 
8 


110 


Seevice  At  Cost  Agreements 


by  the  Company  when  and  as  ordered  by  the  Commission  (Sec. 
ii2,  par.  3).  When  it  is  not  possible  to  borrow  from  these  funds, 
money  shall  be  obtained  in  the  usual  manner,  but  it  is  provided 
that,  except  in  the  case  of  certain  trust  deeds  now  in  existence 
covering  $1,500,000,  mortgages  or  issues  of  mortgage  bonds  or 
debenture  stock  shall  not  aggregate  more  than  seventy-iive  per 
cent,  of  the  total  additional  new  capital.     (Art.  92,  par.  3.; 

Eastebn  Massachusetts 

The  Trustees  have  the  authority,  with  the  approval  of  the  Pub- 
lic Service  Commission,  to  issue  stocks,  bonds  and  other  evidences 
of  indebtedness  of  the  Company.  The  acceptance  of  th«  act  is 
deemed  to  have  given  the  assent  of  the  stockholders  and  Directors 
of  the  Company  to  such  issues,  but  if  it  becomes  necessary,  the 
Directors  are  required  to  take  such  action  as  may  be  requested 
by  the  Trustees  in  r^ard  to  security  issues.     (Sec.  13.) 

Securities  may  be  issued,  for  the  purpose  of  refunding  existing 
obligations,  or  for  the  purpose  of  constructing,  or  acquiring,  new 
lines,  for  the  extension  of  old  lines,  for  the  improvement  of  the 
property,  for  the  purchase  of  new  equipment  or  for  any  other  pur- 
pose, only  with  the  approval  of  the  Public  Service  Commission. 
(Sees.  5,  7.) 

Westebville 
There  is  no  provision  for  the  control  of  security  issues. 

Dallas 
The  City  assumes  no  control  over  the  issuance  of  securities  by 
the  Company,  other  than  to  require  that  the  amount  of  bonds  is- 
sued shaU  at  no  time  exceed  85  per  cent,  of  the  then  Property 
Value.  The  Company  is  given,  with  this  exception,  express  per- 
mission to  issue  securities  as  it  may  see  fit,  while  the  City,  in  ad- 
dition, agrees  to  approve  and  certify  security  issues  when  it  is 
requested  so  to  do  by  the  Company.  The  basis  of  the  control  exer- 
cised  by  the  City,  is  the  Property  Value  of  the  Company  as  fixed 
by  the  Grant  and  the  City  is  not  concerned  with  the  amount  of 
outstanding  securities,  except  as  they  affect  the  terms  of  purchase. 
(Sec.  39.) 


Sbbvice  At  Cost  Agreements 


111 


Memphis 

The  Utilities  Commission  has  such  jurisdiction  as  is  granted  it 
by  the  general  statutes  of  the  State. 

(o)  Bookkeeping 

Clevelaito 
The  City,  acting  through  the  Street  Railroad  Commissioner, 
has  general  supervision  over  the  bookkeeping  and  accounting 
methods  of  the  Company,  subject  to  arbitration  by  the  Committee 
on  Standard  Classification  of  Accounts  of  the  American  Electric 
Railway  Accountants'  Association.     (Sees.  10,  15.) 

YOUNOSTOWN 

The  Commissioner  shall  have  supervision  over  the  book-keeping 
practices  of  the  Company.  In  case  of  dispute,  disagreement  shall 
be  submitted  to  the  arbitration  of  the  Committee  on  a  Standard 
Classification  of  Accounts  of  the  American  Electric  Railway  Ac- 
countants' Association,  or  to  any  other  person,  or  persons  to  whom 
the  regulation  of  accounts  may  be  delegated  by  law.     (Sec.  8.) 

Cincinnati 
The  City,  acting  through  the  Director  of  Street  Railroads,  has 
general  jurisdiction  over  the  method  of  keeping  books  and  ac- 
counts. If  the  Director  disapprove  of  such  methods,  he  shall 
notify  the  Companies,  and  if  a  dispute  arises  the  matter  shall  be 
referred  to  the  authorities  with  whom  the  regulation  of  such  mat- 
ters may  rest  (Presumably  the  Ohio  Public  Utilities  Commis- 
sion). The  Director  is  empowered  to  audit  receipts,  disburse- 
ments, vouchers,  prices,  pay  rolls,  etc.     (Sec.  8.) 

Boston 

Control  in  hands  of  Trustees. 

Massachusetts  (General) 
The  act  provides  for  no  further  supervision  and  control  over 
bookkeeping  than  is  now  exercised  by  the  Public  Service  Commis- 
sion.    This  is,  however,  extensive. 


112 


Seevicb  At  Oost  Agreements 


Service  At  Cost  Agreements 


113 


In  addition  to  the  powers  already  exercised  by  the  Public  Serv- 
ice Commission  over  accounts,  it  is  provided  that  the  Companies 
shall  each  month  furnish  the  Commission  with  such  statements, 
as  the  Commission  may  direct,  showing  the  condition  of  the  re- 
serve fund,  the  income  and  expenditures  of  the  previous  month, 
and  such  additional  information  as  the  Commission  may  require. 
(Sec.  11.) 

Montreal 

The  Commission  has  the  right,  "  by  itself  or  it&  employes,  at 
any  time,  to  examine  all  the  Company's  records  or  other  docu- 
ments, ^and  to  inspect  the  Company's  property,  but  for  the  ex- 
amination, verification  and  audit  of  the  Company's  accounts,  the 
Commission,  unless  it  does  so  itself,  shall  employ  a  chartered  ac- 
countant."    (Art.  18.) 

Within  thirty  days  after  the  expiration  of  each  year  of  opera- 
tion the  Company  is  obliged  to  furnish  to  the  Commission  detailed 
statements  of  its  expenditures  for  operation,  maintenance  and  re- 
newals, and  return  upon  capital  value.     (Art.  92,  Par.  9.) 

Eastern  Massachusetts 
Control  in  hands  of  Trustees.     (Sec.  11.) 

Westerville 

The  Commission  is  given  access  to  the  books,  records  and  ac- 
counts of  the  Company,  to  the  ex-tent  necessary  for  the  ascertain- 
ment of  all  facts  in  connection  with  the  operation  of  the  Division 
and  the  carrying  out  of  the  terms  of  the  Grant.     (Sec.  16.) 

The  Commission  is  not  given  power  to  prescribe  or  supervise 
the  bookkeeping  or  accounting  methods  of  the  Company,  nor  are 
there  any  provisions  in  the  Grant,  covering  the  methods  in  which 
books  and  accounts  shall  be  kept. 

Daluls 

The  method  of  vouching  expenditures,  or  of  keeping  accounts 
may  be  disapproved  by  the  Supervisor,  in  which  case  the  decision 
of  the  Commissioners  shall  be  final  and  not  subject  to  arbitration. 
It  is  stipulated,  however,  that  the  system  of  accounts  promulgated 
by  the  American  Electric  Eailway  Accountants'  Association,  the 


Interstate  Commerce  Commission,  or  by  any  law  of  the  State  of 
Texas,  or  authority  granted  thereunder,  shall  be  satisfactory. 
(Sec.  11.) 

Memphis 
Under  the  jurisdiction  given  it  by  the  general  statutes  of  the 
State,  the  Commission  requires  that  the  accounts  of  the  company 
shall  be  kept  in  accordance  with  the  Standard  Classification  of 
Accounts  of  the  Interstate  Commerce  Commission,  subject  to  such 
modifications  as  the  Utilities  Commission  may  from  time  to  time 
make. 

The  Company  is  required  to  furnish  to  the  Commission  its 
regular  monthly  statements  and  such  other  statements  as  the  Com- 
mission may  require,  showing  the  condition  of  the  Fare  Index 
Fund,  various  other  reserves,  its  revenue  and  details  of  the  cost' 
of  the  service  for  the  previous  month,  and  such  other  information 
as  the  Commission  may  desire.  The  Commission  may  make  such 
investigation  of  the  accounts  of  the  Company  as  it  may  deem  nec- 
essary, the  cost  to  be  borne  as  a  part  of  the  cost  of  service. 

(6)  METHODS  AND  PRACTICES 

Cleveland 
The  City  Street  Railroad  Commissioner  is  charged  with  the 
duty  of  seeing  that  the  Company  uses  due  diligence  in  the  col- 
lection of  its  revenue,  and  in  enforcing  the  rules  against  the  grant- 
ing of  free  transportation.  He  is  to  require  the  Company  to 
adopt  such  methods  in  this  respect  as  he  may  prescribe.  (Sec. 
30.)  ^ 

YOUNGSTOWN 

1^0  settlement  for  claims  and  damages  shall  be  paid  unless  ap- 
proved by  the  City  Solicitor,  who  is  privil^ed  to  appear  in  all 
actions  for  damages,  involving  City  lines.     (Sec.  10-Ca.) 

Cincinnati 

The  Director  must  approve  contracts  for  use  or  sale  of  power, 
and  new  and  additional  leases  of  street  or  interurban  railways. 
(See;  S.)  r    .     V     ■■  ■ 


I 


114 


Sebvice  At  Cost  Aobeembnts 


No  transfer  of  franchises  or  grants  shall  be  made  without  the 
approval  of  the  Director.     (Sec.  8.) 

Boston 
Control  in  hands  of  Trustees. 

Massachusetts  (General) 
"  The  Commission  may  require  such  changes  in  the  manage- 
ment and  operation  of  any  company  which  has  accepted  the  pro- 
vision  of  this  act,  as  in  its  opinion,  may  be  necessary  for  the 
e^cient  conduct  of  the  business  of  the  company  in  the  interest  of 
the  public."     (Sec.  11.) 

"  Tn  case  any  special  investigation  of  any  company  is  deemed 
necessary  by  the  Commission,  the  Commission  may  order  such 
investigation,  the  expense  thereof  to  be  paid  by  the  Company." 

In  addition,  the  Public  Service  Commission  is  by  the  general 
UwB  of  the  State  already  clothed  with  extensive  powers  of  supei- 
Vision  and  control. 

Montbsal 

Certain  methods  and  practices  are  provided  for  in  the  agree- 
ment, as:  ° 

The  use  of  T-rails  is  forbidden,  except  in  streets  that  are  un- 

paved  or  paved  with  plain  asphalt.     (Arts.  42,  52.) 

The  use  of  iron  trolley  poles  is  required.     (Art.  45.) 

Conductors  and  agents  must  speak  both  French  and  English 
(Art.  59.)  ^ 

Cars   must   cariy   illuminated    route   and   destination    eigna 
(Art.  61.) 

Eastebn  Massachusetts 
Control  in  hands  of  Trustees.     (Sec.  11.) 

Westerville 
No  provisions. 

Dallas 

Methods  of  construction,  maintenance  and  operation,  including 
location,  character  and  type  of  tracks,  and  the  location  of  all  polej 


Service  At  Cost  Agreements 


115 


wires  and  other  appurtenances  in  the  street  are  subject  to  City 
ordinance,  rules  and  regulations.      (Sec.  3.) 

Rails-  shall  be  maintained  flush  with  the  street.  (Sec.  3.)  See 
also  C.-4,  (a). 

Memphis 

The  Utilities  Commission  has  such  jurisdiction  as  is  granted 
it  by  the  general  statutes  of  the  State.  The  order  provides  that  it 
may  make  such  investigation  of  the  character  of  the  service  as 
it  deems  necessary,  the  cost  to  be  borne  as  a  part  of  the  cost  of 
service. 

7.— USE  OP  TRACKS  AND  FACILITIES  BY  OTHER  COMPANIES 


Cleveland 


No  provisions. 


Youngstown 
No  provisions. 

Cincinnati 
The  Company  is  required  to  permit  the  use  of  its  track  by 
suburban,  interurban,  elevated  or  underground  electric  railways, 
or  union  interurban  terminal  railways,  for  access  to  terminals  of 
such  railways  within  the  city,  or  for  access  to  any  rapid  transit 
railway  which  the  city  may  build,  upon  terms  and  conditions  in- 
cluding a  reasonable  return  upon  the  investment  of  the  Company. 
Tn  the  event  of  a  disagreement,  the  decision  of  the  Director  of 
Street  Railroads  shall  be  final,  except  that  the  Company  may 
appeal  to  any  court  of  competent  jurisdiction  on  the  ground  that 
the  conditions  are  inequitable,  or  that  the  compensation  fixed  does 
not  provide  cost  and  a  proper  return  to  the  Company.     (Sec.  8.) 


t  I 

I 


Boston 
No  provisions  covering  these  matters  in  the  act,  but  as  Sec.  2 
take?  jurisdiction  away  from  the  Public  Service  Commission,  that 
body  is  now  without  power  to  order  joint  use  of  track. 


li 


No  provisions. 


Massachusetts  (General) 


116 


Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


117 


Montreal 
With  the  acceptation  of  the  use  provided  Tby  the  agreement  be- 
tween the  Company  and  the  Southern  Counties  Railway  Co.,  in 
edstence  at  the  time  the  agreement  took  effect,  the  Company  is 
lorbidden  to  permit  the  use  of  its  tracks  by  another  company,  or 
>  connect  its  tracks  with  tho^e  of  another  company  without  the 
'msent  of  the  Commission.     (Art.  28.) 

Eastern  Massachusetts 
Ko  provisions  except  that  the  Company  is  especially  authorized 
to  dispose  of  surplus  electricity,  at  rates  and  charges  to  be  fixed 
by  itself,  subject  to  the  approval  of  the  State  Board  of  Gas  and 
Electric  Light  Commissioners  which  shall  first  determine  that 
public  necessity  and  convenience  requires  the  same.     (Sec.  20.) 

Westerville 
1^0  provisions. 

Dallas 
The  Company  upon  which  the  Grant  was  conferred  was  organ- 
ized to  acquire,  among  other  properties,  the  Interurban  Terminal  ' 
owned  by  the  Dallas  Interurban  Terminal  Association,  and  to 
execute  leases  with  the  interurban  companies  entering  Dallas  for 
its  use  by  them. 

Fnder  the  Grant,  the  Company  is  required  to  permit  the  use 
of  Its  tracks  for  the  purpose  of  reaching  the  terminal,  by  any 
interurban  which  may  secure  the  consent  of  the  City  to  enter 
tl  P  City.  In  the  event  of  disagreement  as  to  the  compensation 
tA  be  paid  the  matter  shall  be  submitted  to  arbitration.  The 
award  of  the  Arbitration  Board  shall  be  binding,  unless  disap- 
proved by  the  Board  of  Commissioners,  which  may  then  decide 
upon  the  compensation  to  be  paid  and  such  decision  shall  then 
be  binding.     (Sec.  37.) 

During  the  first  ten  years  after  the  taking  effect  of  the  Grant, 
the  Company  is  required  to  pprmit  the  use  of  the  terminal  by  at 
least  foiir  new  interurban  companies  and  to  permit  their  partici- 
pation in  the  lease,  regardless  of  the  effect  upon  the  ability  of  the 
Company  to  earn  its  stipulated  rate  of  return,  provided  that  the 


consent  of  the  Commissioners'  is  obtained,  and  the  Company  shall 
further  provide  facilities  for  such  Companies.     (Sec.  37.) 

After  ten  years,  or  after  four  new  interurbans  have  been  given 
entrance  to  the  terminal,  the  question  of  the  admission  of  any 
new  interurban  shall  be  subject  to  arbitration.  If  any  inter- 
urban, party  to  the  lease,  shall  object  to  the  entrance  of  a  new 
interurban  on  the  grounds  that  the  Terminal  would  be  over- 
crowded, the  Board  of  Arbitration  shall  diecide  whether  the  Ter- 
minal would  be  so  overcrowded,  and  whether  the  furnishing  of 
any  additional  facilities  needed  would  jeopardize  the  Company's 
ability  to  earn  its  stipulated  return  under  the  highest  fare 
allowed  by  the  Grant.  If  the  Board  decides  that  the  Terminal 
would  not  be  overcrowded  the  new  interurban  shall  be  admitted. 
If  it  decides  that  it  would  be  overcrowded  and  that  the  furnish- 
ing of  additional  facilities'  would  jeopardize  the  Company's 
return  the  new  interurban  shall  not  be  admitted.     (Sec.  37.) 

The  City  may  order,  or  the  Company  may  propose,  subject  to 
the  City's  approval,  addition  to  Terminal  facilities.  In  case  of 
disagreement  as  to  the  jeopardy  of  the  Company's  return  because 
of  such  expenditure  the  matter  shall  be  arbitrated.     (Sec.  37.) 

Grantee  may  provide  storage  facilities  in  connection  with  the 
Terminal,  and  the  use  of  such  facilities  including  track  connections 
by  interurbans  shall  be  permitted  by  City.     (Sec.  37.) 

If  Grantee  elects  not  to  renew  lease  of  any  interurban  and  such 
interurban  elects  to  purchase  under  terms  of  lease,  the  price  shall 
be  subject  to  the  approval  of  the  City,  and  the  Grantee  shall  sub- 
mit to  arbitration  any  disagreement  as  to  the  price  fixed  by  City. 
(Sec.  37.) 

When  the  ownership  of  the  Terminal  by  the  Grantee  ceases  the 
provisions  of  the  Grant  relative  to  its  use  cease  to  be  operative. 
(Sec.  37.) 

The  Grant  does  not  abridge  or  interfere  with  existing  con- 
tracts affecting  the  operation  of  interurban  or  suburban  cars,  or 
interurban  express  cars.  Copies  of  such  contracts  must  be  filed 
with  the  City.     (Sec.  37.) 

The  City  may  require  the  Company  to  permit  the  attachment 
to  its  poles  of  the  wires  of  other  persons  or  corporations,  provid- 
ing that  it  can  be  shown  that  such  attachment  is  safe,  and  that 


118 


SxBviCB  At  Oost  Agreements 


it  does  not  subject  the  Company  to  increased  risk?  of  interrup- 
tion, and  only  if  the  wires  and  appurtenances  to  be  attached  con- 
form with  the  modem  practice.     (Sec.  3.) 

The  City  may  grant  to  the  Company  under  like  conditions  the 
right  to  attach  its  wires  to  the  poles  of  other  corporations  or  per- 
sons.    (Sec.  3.) 

Memphis 

The  Utilities  Commission  has  such  jurisdiction  as  is  granted  to 
it  by  the  general  statutes  of  the  State. 

S._]IACHI1IEST  OF  CONTROL 

(a)  Powor;  Where  Lodged 

Cleveland 
Such  control  over  the  affairs  of  the  Company  ae  is  provided  in 
♦he  grant,  is  exercised  by  the  City  acting  through  its  City  Council. 

YOUNOSTOWN 

The  general  power  of  control  is  lodged  in  the  city  of  Youngs- 
town,  acting  through  its  City  Council.  Certain  details  of  admin- 
istration are  assigned  to  the  Commissioner.     (Sec.  6.) 

Cincinnati 

The  approval  of  type  and  character  of  construction  ie  with 
the  boards  and  officers  of  the  City  having  jurisdiction  under  law 
and  ordinance.     (Sec.  6.) 

The  power  to  order  changes  and  extensions  of  routes  and  addi- 
tional lines  of  road  is  lodged  in  the  City  Council,  which  shall  act 
by  ordinance.     (Sec.  8.) 

The  approval  of  the  issuance  of  securities-  is  lodged  with  the 
Director  of  Street  Railroads  and  the  Public  Utilities  Commis- 
sion of  Ohio.     (Sec.  22.) 

The  control  of  service  is  vested  in  the  Director  of  Street  Rail- 
roads.    (Sec.  8.) 

Boston 
All  control  is  lodged  in  a  Board  of  five  Trustees,  appointed  by 
the  Governor,  with  the  advice  of  his  Council.    Their  term  is  ten 
years,  the  fixed  period  of  public  management  and  control.     If 


Service  At  Cost  Agreements 


119 


this  period  is  extended,  their  successors  may  be  appointed  for  a 
like  term  but  not  for  longer  than  public  management  and  control 
shall  continue.  They  shall  own  no  stock,  or  other  securities  of 
the  Company,  or  companies  leased  or  operated  by  it.  They 
receive  $5,000  a  year,  each,  paid  by  the  Company.  They  may 
be  removed  for  cause  by  the  Governor,  with  the  advice  and 
consent  of  the  Council.  Vacancies  are  filled  by  the  Governor 
with  the  consent  of  the  Council. 

The  Trustees  are  relieved  by  the  act  from  the  legal  inhibition 
against  the  employment  by  the  Company  of  any  person  at  the 
instigation  of  public  officers,  in  so  far  as  it  might  apply  to  them 
as  public  officers.  In  other  respects  they  are  subject  to  the  laws 
of  the  State  governing  public  officers  as  are  the  Directors  of  the 
Boston  Elevated  Railway  Company.     (Sec.  1.) 

In  the  management  and  operation  of  the  company,  the  Trus- 
tees shall  be  deemed  to  be  acting  as  agents  of  the  Boston  Elevated 
Railway  Company  and  not  of  the  Commonwealth  and  the  Com- 
pany is  liable  for  their  acts  as  if  they  were  in  Company  employ, 
but  the  Trustees  shall  not  be  held  personally  liable.    (Sec.  2.) 

A  majority  of  the  Board  constitutes  a  quorum  for  the  trans- 
action of  business.     (Sec.  2.) 

Massachusetts  (General) 
Control  of  the  affairs  of  the  Company  is  exercised  in  two  ways. 
First,  through  three  trustees  appointed  to  the  Board  of  Directors 
of  the  Company  by  the  Governor  who  are  in  intimate  touch  with 
its  corporate  affairs.  (See  C-1),  and,  second,  by  the  State  Pub- 
lic Service  Commission.     (Sees.  2,  4,  6,  7,  8,  11,  12,  13,  14.) 

Montreax 
Two  Commissions  have  jurisdiction  over  the  affairs  of  the  Com- 
pany. The  agreement  does  not  change  the  jurisdiction  already 
possessed  by  the  Quebec  Public  Utilities  Commission,  but  con- 
fers certain  powers  and  duties  upon  the  Montreal  Tramways 
Commission,  and  it  is  agreed  as  between  the  Company  and  the 
City,  that  in  all  matters  in  which  the  Montreal  Commission  has 
jurisdiction,  demands  and  complaints  shall  be  initiated  before  it. 


M 


n 


120 


Service  At  Cost  Agreements 


1 

Sebvice  At  Cost  Agreements 


121 


f  f 


although  tinder  the  law,  they  might  he  taken  directly  to  the  Que- 
bec Public  Utilities  Commission.  When  an  appeal  from  the  deci- 
sion of  the  Montreal  Commission  to  the  Quebec  Commission  is 
not  authorized  under  the  agreement,  or  when  an  appeal  is  author- 
ized but  not  made  and  the  Company  refuses  or  neglects  to  carry* 
out  the  orders  of  the  Montreal  Conmiission,  the  matter  is  reported 
to  the  Quebec  Commission,  which  shall  issue  and  enforce  such 
orders  in  the  premises  as  it  deems  necessary.  In  other  words  the 
Quebec  Commission  acts  as  a  court  of  appeals  in  matters  in 
which  the  Montreal  Commission  has  jurisdiction,  and  its  powers 
may  be  invoked  by  the  Montreal  Commission  in  matters  over 
which  the  latter  has  no  jurisdiction.     (Art.  20.) 

When  the  Commission  shall  refuse  or  neglect  to  act  in  any 
matter  within  its  jurisdiction  as  established  by  the  agreement, 
within  the  period  therein  allowed  for  delay,  or  if  no  such  period 
is  fixed,  within  a  reasonable  time,  upon  the  request  of  any  inter- 
ested party,  the  Quebec  Public  Utilities  Commission  shall  act  in 
its  stead.     (Art.  91.) 

In  addition  certain  power  is  lodged  directly  with  the  City: 
Grades  of  tracks  in  streets  shall  be  fixed  by  the  city  engineer 
(Art.  40)  ;  the  pavement  to  be  used  between  the  tracks  shall  be 
specified  by  the  city  (Art.  41)  ;  the  city  engineer  shall  specify 
the  system  of  track  drainage  to  be  used  (Art.  50)  ;  the  City  may 
specify  the  manner  in  which  snow  and  ice  shall  be  removed  from 
tracks  (Art.  66) ;  the  City  may,  if  in  the  opinion  of  the  Com- 
mission, the  work  will  not  interfere  with  the  traffic,  require  the 
Company  to  flush,  sprinkle  or  sweep  streets  and  to  carry  garbage, 
waste,  rubbish  and  snow  for  the  city,  at  a  price  which  shall 
include  a  profit  of  ten  per  cent,  over  cost.     (Art.  68.) 

Eastebn  Massachusetts 

Control  is  lodged  in  a  Board  of  Five  Trustees,  appointed  and 
removable  by  the  Governor  with  advice  and  consent  of  his  Coun- 
cil. Their  term  of  office  is  ten  years,  the  full  period  of  public 
control.  The  salary  is  $5,000  a  year  each,  to  be  paid  from  the 
receipts  of  the  Company. 

The  Trustees  elect  their  own  Chairman.  The  affirmative  action 
of  not  less  than  three  members  present  at  any  stated  or  special 


meeting  is  necessary  or  required  for  the  action  of  the  Board. 
(Sec.  11.) 

In  the  management  and  operation  of  the  Company,  the  Trus- 
tees shall  be  deemed  to  be  acting  as  the  agents  of  the  Company, 
and  the  Company  is  liable  for  their  acts,  as  if  they  were  in  the 
employ  of  the  Company.  The  individual  Trustees  are  not  to  be 
held  personally  liable,  except  for  malfeasance  in  office.  (Sec. 
11.) 

Westebville 

Control  is  lodged  in  the  Board  of  County  Commissioners  of 
Franklin,  or  in  the  event  that  the  Board  is  abolished,  then  in 
such  other  public  officers  as  may  be  assigned  its  duties.  (Sees.  6 
and  7.) 

Daltjis 
By  the  provisions  of  the  Grant,  certain  specific  authority  is 
given  both  to  the  Supervisor  of  Public  Utilities  and  to  the  Board 
of  Comissioners  (i.e.,  Board  of  City  Commissioners,  Dallas  hav- 
ing a  Commission  form  of  Government).  In  general,  however, 
the  powers  of  the  Supervisor  are  largely  administrative  and  the 
actual  control  is  lodged  with  the  Board  of  Commissioners. 

Memphis 
Lodged  in  the  State  Kailroad  and  Public  Utilities  Commission. 

(b)  Adminigtration 

Cleveland 
A  City  Street  Kailroad  Commissioner  is  appointed  by  the 
Mayor,  with  the  approval  of  the  City  Council,  and  is  removable 
at  the  pleasure  of  the  City.     His  salary  and  expenses  are  paid 
by  the  Company.     (Sec.  10.) 

YOUNGSTOWN 

A  Street  Railroad  Commissioner  is  appointed  by  the  Mayor 
subject  to  the  confirmation  of  the  City  Council.  He  is  subject 
to  removal  by  the  Mayor,  who  is  authorized  to  appoint  his  suc- 
cessor. (Sec.  8.)  His  salary,  not  to  exceed  $600  a  month,  is 
paid  as  an  Operating  Expense.     His  administrative  expenses, 


»"  <i 


122 


Sbbvice  At  Cost  Aokbembnts 


including  assistants,  etc.,  not  to  exceed  $900  a  month,  are  charged 
as  an  operating  expense.  His  expenses  in  connection  with  the 
preparation  of  plans  and  estimates  for,  and  supervision  over, 
Betterments,  Extensions  and  Permanent  Improvements  are  a 
charge  against  Capital  Value,  if  the  improvements  be  carried  out, 
but  against  Operating  Expense,  if  they  be  not  carried  out. 
(Sees.  8-A  and  15-D.) 

Cincinnati 
The  office  of  Director  of  Street  Railroads  was  in  existence  at 
the  time  of  the  passage  and  acceptance  of  the  present  agreement, 
which  simply  specifies  his  duties  under  the  terms  of  the  grant, 
and  does  not  provide  for  his  appointment  or  compensation.  As 
ft  matter  of  fact  he  is  appointed  by  the  Mayor  and  his  salary  and 
expenses  paid  by  the  City. 

Boston 
The  affairs  of  the  Company  are  administered  by  the  Board  of 
Trustees,    a   majority    of    whom    shall    constitute    a    quorum. 
(Sec.  2.) 

IMassachusetts  (General) 

The  Public  Service  Commission  is  directed  to  divide  the 
State  into  "  Street  Railway  Districts,"  and  to  appoint  for  each 
such  district,  in  which  is  located  one  or  more  companies,  which 
have  accepted  the  provisions  of  the  Act,  one  or  more  Resident 
Supervisors,  whose  term  of  office  shall  be  three  yeare  and  whose 
salaries  and  expense  allowances  shall  be  fixed  by  the  Commis- 
sion, and  paid  by  the  Company  or  companies  to  the  supervision 
of  which  they  ar^  assigned.  (Sec.  11.)  Such  Commissioners 
report  to  the  Public  Service  Commission.     (Sec.  11.) 

The  administration  of  the  Act  lies  with  the  Public  Service 
Commission,  which  is  authorized  to  enforce  its  orders,  rules  and 
regulations  in  the  manner  already  provided  by  statute  for  the 
enforcement  of  Public  Service  Commission  orders.     (Sec.  15.) 

Monteeal 
There  is  created  the  Montreal  Tramways  Commission,  con- 
sisting of  three  members,  to  be  appointed  by  the  Lieutenant-Gov- 
ernor in  Council,  who  shall  also  designate  the  chairman  and  act- 
ing chairman.    Appointees  shall  reside  in  the  territory  under  the 


Service  At  Cost  Ageeembnts 


123 


Commission's  control   (Arts.  2,  3);  the  term  of  office  of  each 
Commissioner  is  ten  years,  but  he  may  be  dismissed  for  cause  by 
the  Lieutenant-Governor  (Art.  5),  and  the  City  or  the  Company 
may  bring  quo  warranto  proceedings  in  the  Superior  Court  for 
the  District  of  Montreal  to  oust  any  Commissioner,  on  the  ground 
of  fraud,  bribery,  refusal  or  neglect  to  carry  out  in  good  faith  the 
powers  and  duties  assigned  by  the  agreement,  or  if  he  is  dis- 
qualified because  of  his  being  a  member  of  the  City  government, 
or  of  any  of  the  municipalities  interested,  or  in  the  employ  of 
any  of  the  parties  or  municipalities  interested  in  the  agreement, 
or  hold  any  of  the  securities  of  the  Company,  or  be  interested 
directly  or  indirectly  in  any  contract  with  one  of  the  parties  or 
with  any  of  the  municipalities,  or  be  interested  in  any  patented 
article  used  by  the  Company,  or  be  a  holder  of  the  securities  of 
any  company  having  a  contract  with  the  City,  Company  or  any 
of  the  municipalities ;  or  be  a  member  of  the  Legislative  Assem- 
l:ly  or  of  the  Legislative  Council  of  the  Province.     (Arts.  6,  7.) 
Vacancies  are  filled  by  the  Lieutenant-Governor;  the  compensa- 
tion of  the  Commissioners  is  fixed  by  the  Lieutenant-Governor 
and  paid  by  the  Company.     (Art.  9.)     The  Commission  makes 
the  rules  for  its  internal  government  and  for  procedure  in  mat- 
ters brought  before  it,  which  rules  must  be  approved  by  the  Que- 
bec Public  Utilities  Commission.     (Art.  10.)     Every  decision  of 
the  Commission  to  be  effective  must  have  the  votes  of  at  least 
two  members  (Art.  8),  and  cannot  be  rendered  until  all  inter- 
ested parties  shall  have  been  notified.     (Art.  12.)     The  Commis- 
sion may  appoint  a  secretary,  such  employes  as  it  may  require, 
and  ^x  their  salaries,  engage  and  pay  experts  and  lawyers,  pro- 
vide itself  with  suitable  offices  and  whatever  it  may  need  to 
enable  it  to  perform  its  duties,  and  the  Company  shall  pay  all 
such  expenses  at  the  request  of  the  Commission,  except  that  it 
may  appeal  to  the  Quebec  Public  Utilities  Commission  for  a 
revision  of  such  expenses.     (Art  17.) 


!lfl 


Eastern  Massachusetts 

The  affairs  of  the  Company  are  administered  by  the  Board  of 
Trustees.     (Sec.  11.) 


lU 


Sebvicb  At  Cost  Agbeembnts 


VI 


Westerville 
The  Commissioners  may  appoint  a  Street  Railway  Commis- 
sioner, remove  such  Commissioner  and  fill  vacancies  in  the  office. 
(Sec.  8.) 

The  Street  Railway  Commissioner  shall  represent  the  Com- 
inissioners  in  all  matters  relating  to  service,  schedules  and  opera- 
Hon  of  ears.  He  shall  he  paid  a  salary  of  not  more  than  $50  a 
month,  unless  a  higher  sum  is  mutually  agreed  upon  by  the  Com- 
missioners and  the  Company.  His  salary  and  necessary  expenses 
shall  he  included  as  part  of  the  cost  of  operation.     (Sec.  9.) 

Dallas 

The  administrative  officer,  the  Supervisor  of  Public  Utilities, 
is  appointed  by  the  Board  of  Commissioners  for  an  indeterminate 
term,  is  removable  at  the  Board's  pleasure,  and  if  found  to  be 
incompetent  or  dishonest  must  be  so  removed.     (Sec.  11.) 

If  at  any  time  the  provisions  of  the  act  relative  to  the  author- 
ity of  the  Supervisor  are  found  to  be  invalid,  the  Board  shall 
appoint  one  of  its  members  to  act  a&  Supervisor  ex-offlcio.  CSec. 
43.)  ^ 

In  the  case  of  the  ten»porary  absence  or  the  disability  of  the 
Supervisor  the  Board  of  Commissioners  may  appoint  some  one 
to  act  in  his  stead,  and  until  such  appointment  is  made  the  Mayor 
ehall  so  act.     (Sec.  11.) 

The  Company  shall,  at  the  request  of  the  Board,  furnish,  not 
to  exceed  two  rooms  as  offices  for  the  Supervisor,  together  with 
needed  furniture  and  supplies.     (Sec.  11.) 

The  Supervisor  may  employ  such  assistants,  including  engi- 
neers, accountants  and  clerks,  as  may  be  authorized  by  the  Board 
of  Commissioners.     (Sec.  11.) 

The  salary  of  the  Supervisor  shall  be  fixed  by  the  Board  of 
Commissioners.  The  Company  shall  pay  such  proportion  of  the 
salary  and  of  the  expenses  of  administration,  including  the  sal- 
aries of  his  assistants,  as  its  total  gross  receipts  bear  to  the  total 
gross  receipts  of  all  utilities  supervised  by  him,  except  that  it  shall 
not  be  required  to  pay  in  any  one  month  more  than  one-half  of 
one  per  cent  of  its  average  monthly  gross  receipts  for  the  preced- 
ing twelve  months.  The  salaries  paid  shall  in  no  case  be  unreason- 
able in  amount    (Sec.  11.) 


Sebvice  At  Cost  Agkeemexts 


125 


The  Supervisor  may  further  employ  such  assistants  as  may  be 
necessary  to  permit  the  checking  of  estimates  for  Extensions, 
Betterments  and  Improvements,  and  for  checking  materials,  lal)or 
and  other  costs  of  such  Extensions,  Bettennents  and  Improve- 
ments, and  in  the  event  that  the  Extensions,  Betterments  and 
Improvements  are  made  such  expenditures  shall  be  charged 
against  them  and  added  to  Property  Value,  while,  if  they  are  not 
made,  the  expenditures  shall  be  charged  to  Operating  Expenses. 
(Sec.  ?7.) 

Memphis 

Administration  is  by  the  State  Railroad  and  Public  Utilities 
Connnission. 

(c)  Powers  and  Duties  of  Administrative  Body 

Cleveland 

The  City  Street  Railroad  Commissioner  is  the  technical  ad\4sor 
to  the  City  Council,  in  matters  affecting  the  interpretation  of  the 
grant,  and  in  matters  affecting  the  quantity  and  quality  of  the 
service,  its  cost,  and  the  rate  of  fare.  He  is  to  keep  informed 
as  to 

The  cost,  quality  and  quantit;^^  of  service. 

The  receipts-,  disbursements  and  property  of  the  Company, 

The  rate  of  fare. 

The  vouchering  of  expenditures, 

The  keeping  of  accounts. 

Other  bookkeeping  methods  (Sec.  10).  He  is  to  require  and 
secure  from  the  Company  monthly  reports  of  car-mileage  and 
earnings,  and  such  other  reports  as  he  may  deem  necessary.  He 
has  authority  to  inspect,  examine,  audit  and  verify  the  account?, 
vouchers,  documents,  books  and  property  of  the  Company,  relat- 
ing to  the  receipt  and  expenditure  of  money,  and  the  operation 
of  the  Company.     (Sec.  15.) 

He  has  power,  pending  action  of  the  City  Council  and  to  meet 
emergencies  to  approve  changes  in  schedules  and  routes.  (Sec. 
12.) 

9 


I 


^11 


12( 


Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


41 


When  authorized  so  to  do  by  the  City  Council  he  shall  exercise 
the  Council's  power  to  pass  upon  expenditures  for  renewals  and 
replacements,  made  from  the  Maintenance,  Renewals  and 
Replacement  Fund.  (Sec.  20.) 

He  shall  prepare  estimates  of  Extensions,  Betterments  and 
Permanent  Improvements,  to  be  proposed  by  the  City,  and  shall 
check  estimates  for  the  same  purpose  proposed  by  the  Company. 
(Sec.  27.) 

He  shall  inform,  himself  as  to  the  methods  and  practices  of  the 
Company,  in  the  matter  of  collection  of  revenue  and  the  granting 
of  free  transportation,  and  if  these  methods  are  in  his  judgment 
wasteful,  he  shall  notify  the  Company  and  secure  their  correc- 
tion.    (Sec.  C-4-(d).)     (Sec.  30.) 

Younostown" 
The  Street  Railroad  Commissioner  is  the  technical  adviser  to 
the  City  Council  as  to  the  interpretation  of  the  grant,  and  as  to 
matters  affecting  service,  its  cost  or  the  rate  of  fare. 

He  shall  keep  informed  as  to: 

The  cost,  quality  and  quantity  of  service, 

The  receipts,  disbursements,  property  and  equipment  of  the 

Company, 
The  rate  of  fare, 
The  vouchering  of  expenditures, 
The  keeping  of  accounts  and  other  bookkeeping  methods. 

(Sec.  8.) 

Shall  have  authority  over  the  carrying  of  city  passengers  on 
interurban  and  suburban  cars.     (Sec.  11-E.) 

Shall,  with  the  City  Solicitor,  act  in  the  allotment  of  damages 
as  between  the  City  system  and  the  interurban  and  suburban  sys- 
tem   for   accidents   on    interurban    and    suburban    cars.      (Sec 
11-E.) 

Shall  require  and  cause  to  be  made  by  the  Company  monthly 
reports  of  car  mileage  and  earnings  and  such  other  statements  as 
he  or  the  City  Council  may  require.     (Sec.  7.) 


127 


Shall,  in  emergencies,  and  pending  action  by  the  City  Council, 
have  power  to  approve  changes  in  routes  and  schedules.    (Sec.  6.) 

Shall  have  the  power  to  inspect  and  audit  receipts,  disburse- 
ments, vouchers,  payrolls,  time  cards,  shop  cards,  papers,  books, 
documents  and  property  of  the  Company.     (Sec.  8- A.) 

Shall  approve  all  salaries  paid  officials,  who  receive  all,  or  part 
of  their  salaries  from  receipts  of  City  lines.     (Sec.  11-Da.) 

Shall,  when  authorized  by  the  City  Council,  have  jurisdiction 
over  all  charges  for  replacement  and  renewals  proposed  to  be 
made  from  the  Maintenance,  Repair  and  Renewal  Account. 
(Sec.  12-A.) 

Shall  supervise  methods  of  fare  collection  and  enforce  the 
rules  regulating  free  transportation  and  shall  prevent  wasteful 
expenditures  for  materials  or  in  the  employment  of  persons. 
(Sec.  14-A.) 

Shall  prepare  for  the  City  estimates  and  plans  for  Extensions, 
Betterments  and  Permanent  Improvement?,  proposed  by  the  City, 
and  shall  supervise  the  work  of  carrying  out  such  Extensions, 
etc.,  whether  proposed  by  the  City  or  the  Companv.  (Sec. 
15-D.) 

May  require  the  Company  to  place  at  interest  moneys  raised 
for  Betterments,  Extension  and  Permanent  Improvements  when 
same  are  not  to  be  used  for  at  least  one  month.     (Sec.  10-B.) 

■ 

Cincinnati 

The  Director  of  Street  Railroads  — 

He  is  technical  adviser  to  the  Council  in  all  matters  affecting 
the  interpretation  of  the  Grant,  and  in  matters  affecting  the 
quantity  and  quality  of  the  service,  its  cost  and  the  rate  of  fare. 
He  is  vested  with  such  control  of  the  service  as  is-  reserved  to 
the  City.     He  shall  keep  informed  as  to  — 

The  cost,  quality  or  quantity  of  the  service; 

The  receipts,  disbursements,  leases-,  rentals  and  property  of 
the  Company; 
Transfers,  transfer  regulations        and  rules; 

Vouchers  of  expenditures  and  payments  to  the  City  pro- 
vided by  the  grant ; 


{ 


h 


128 


Service  At  Cost  Agreements 


ServiOe  At  Cost  Agreements 


129 


I 


41 


Tlie  manner  of  compliance  by  the  Compny  with  the  terms 
of  the  Grant,  or  rules  made,  orders  issued  and  decisions 
rendered.     (Sec.  8.) 

He  is  empowered  to  inspect  and  audit  all  receipts,  disburse- 
ments, vouchers,  prices,  pay  rolls,  salaries  of  officers,  time-cards, 
papers,  books,  documents  and  property  of  the  Companies  l)ear- 
ing  upon  the  performance  of  their  duties  and  obligations. 
(Sec.  8.) 

Contracts  for  the  use  and  sale  of  power  and  the  leases  of  new 
and  additional  lines  of  street  and  interurban  railways  are  sub- 
ject to  his  approval.     (Sec.  8.) 

Neither  franchises  of  the  Company,  nor  grants  made  to  the 
Companies  may  be  transferred  without  the  approval  of  the 
Director.     (Sec.  8.) 

The  Budget  of  Operating  Expenses,  by  General  Accounts,  is 
subject  to  his  approval,  and  may  not  be  exceeded  except  upon  the 
submission  and  approval  of  a  supplementary  estimate.     (Sec.  8.) 

Contracts  for  the  use  of  the  tracks  and  other  facilities  of  the 
Companies,  by  other  railways  are  subject  to  his  approval  and  in 
the  event  of  a  disagreement  between  the  Companies  and  railways 
desiring  to  use  such  facilities,  he  may  fix  the  compensation,  sub- 
ject to  review  by  a  court  of  competent  jurisdiction.     (Sec.  8.) 

He  may  change  and  revise  the  rules  issued  by  the  Company 
for  the  regulation  of  transfers.     (Sec.  8.) 

He  is  empowered  to  require  the  Companies  to  display  in  their 
WITS  copies  of  transfer  regulations.     (Sec.  11.) 

The  rules  of  the  Companies  regulating  the  sale  of  tickets  ar« 
subject  to  his  approval.     (Sec.  20.) 

He  shall  approve,  or  in  the  event  of  his  disapproval,  fix  rates 
for  the  carrying  of  freight,  express  matter  and  packages,  subject 
to  review  by  a  court  of  competent  jurisdiction.     (Sec.  20.) 

He  shall  direct  the  depositing,  or  investment  of  Depreciation 
Funds,  accumulated  in  accordance  with  the  terms  of  the  Grant. 
(Sec.  22.) 

He  shall  certify  the  expenses  and  court  costs  incurred  by  the 
City  in  actions  relative  to  the  enforcement  of  the  terms  of  ordi- 
nances, franchises  and  grants,  which  expense  shall  be  paid  as  an 
Operating  Cost.     (Sec.  22.) 


The  payments  provided  in  any  new  lease  or  agreement  between 
the  Cincinnati  Traction  Co.  and  the  Cincinnati  Street  Railway 
Co.,  to  be  paid  out  of  gross  receipts  are  subject  to  his  approval. 
(Sec.  22.) 

Floating  debt  and  the  interest  thereon,  the  proceeds  of  which 
are  to  be  used  for  Capital  Expenditures,  or  for  producing  the 
Company's  share  of  the  Eoserve  Fund  are  subject  to  this 
approval.     (Sec.  22.) 

He  shall  direct  the  accrual  of  a  Working  Capital  Fund  from 
gross-  receipts  at  such  time  as  he  may  deem  proper.     (Sec.  22-G.) 

He  shall  direct  the  depositing  or  investment  of  the  Reserve 
Fund.     (Sec.  22.) 

Boston 
The  Board  of  Trustees  shall: 

If  an  age  and  operate  the  Company,  and  the  properties  owned, 
leased  or  operated  by  it.     (Sec.  2.) 

Exercise  all  the  rights  and  powers  of  the  Company  and  its 
directors.     (Sec.  2.) 

Appoint,  and  remove  at  its  direction,  the  President,  Treasurer, 
Clerk,  and  all  other  officers  of  the  Company.     (Sec.  2.) 

Fix  and  regulate  fares,  including  the  issue,  granting  and  with- 
drawal of  transfers  and  the  imposition  of  charges  therefor.  (Sees. 
2,  6,  7,  10.) 

Determine  the  character  and  extent  of  the  service  and  the  facili- 
ties to  be  furnished.      (Sec.  2.) 

Receive  and  disburse  the  income  and  funds  of  the  Company. 
(Sec.  2.) 

Make  contracts  in  the  name  of  and  in  behalf  of  the  Company. 
(For  limitations,  sec.  C,  4  (b).)      (Sec.  3.) 

Issue  stocks,  bonds  and  other  evidences  of  indebtedness  for  the 
Company.      (For  limitations,  see  C.  4  (b).)      (Sec.  3.) 

Collect  from  the  Commonwealth,  at  stated  intervals,  sums  suf- 
ficient to  make  up  deficiencies  in  the  Reserve  Fund,  caused  by  the 
failure  of  revenue  to  pay  the  cost  of  service.     (Sec.  11.) 

Repay  to  the  Commonwealth,  when  the  condition  of  the  Reserve 
Fund  permits  it,  moneys  received  to  make  up  deficiencies.  (Sec. 
11.) 


130 


Service  At  Cost  Agreements 


t 


Borrow  needed  sums  in  anticipation  of  payments  by  the  Com- 
monwealth to  make  up  deficiencies  in  Reserve  Fund.     (Sec.  11.) 

Maintain  the  property  of  the  Company  in  good  operating  con- 
dition and  provide  for  depreciation,  obsolescence  and  rehabilita- 
tion.    (Sec.  13.) 

Massachusetts  (General) 
The  Public  Service  Commission  shall: 

Determine  the  amount  of  "  capital  investment ''  of  companies 
accepting  the  provisions  of  the  act.     (Sec.  2.) 

Determine  the  status  of  the  funded  debt  of  any  Company  seek- 
ing to  come  under  the  terms  of  the  act,  in  order  to  determine  the 
amount  of  such  debt,  interest  upon  which  shall  be  included  in  the 
cost  of  service.     (Sec.  4.) 

Direct  the  amount  of  and  time  of  payment  of  the  funds  to  be 
provided  by  the  Company,  for  the  Reserve  Fund,  and  pass  upon 
the  proposal  of  the  Company  for  its  increase.     (Sec.  3.) 

Approve  or  disapprove  of  the  schedule  of  fares,  submitted  by 
the  Company,  and  if  it  disapprove,  establish  schedule  in  lieu 
thereof.     (Sec.  6.) 

Pass  upon  proposals  by  the  Company  to  change  fare  schedules, 
either  in  regard  to  basis  of  fares  or  transfer  privileges,  or  in  re- 
gard to  "steps,"  between  the  different  rates.     (Sec.  (J.) 

Pass  upon  proposals  by  the  Company  to  make  effective  higher 
or  lower  grades  of  fare  (when  the  Reserve  Fund  is  above  or  below 
normal)  at  other  times  than  those  provided  in  the  Act.      (Sec.  7.) 

Pass  upon  the  Company's  plan  for  making  improvements 
through  the  expenditure  of  a  special  improvement  fund,  which 
the  Company  is  obliged  to  provide  before  it  is  permitted  to  ac- 
cept the  provisions  of  the  Act.     (Sec.  8.) 

Require  from  the  Company  monthly  statements,  covering  the 
condition  of  the  Reserve  Fund,  income  and  expenditures  and  such 
other  matters,  as  will  enable  it  to  protect  the  public  interest 
(Sec.  11.) 

Divide  the  State  into  Street  Railway  Districts  and  appoint  one 
or  more  Resident  Supervisors  for  each  District.     (Sec.  11.) 

Make  such  special  investigations  of  the  affairs  of  the  Company 
as  it  may  consider  necessary.     (Sec.  11.) 


Service  At  Cost  Agreements 


131 


Order  such  changes  in  management  and  operation  of  the  Com- 
pany as  are,  in  its-  opinion,  necessary  for  the  efficient  conduct  of 
the  business  in  the  public  interest.     (Sec.  11.) 

Require  aii}^  foreign  company  furnishing  electric  light  or  power 
to  the  Company  to  file  with  it  a  schedule  of  all  rates  charged  and 
such  other  information  as  the  Commission  may  require  and  to 
pass  upon  the  reasonableness  of  such  charges  to  the  Company. 
If  the  foreign  company  or  companies  refuse  to  furnish  the  in- 
formation, or  the  Commission  holds  their  charges  to  l)e  unreason- 
able, the  State  Gas  and  Electric  Light  Commission  is  authorized 
by  the  Act,  to  prohibit  the  transmission  by  the  foreign  company 
or  companies  of  electric  current  for  light  or  power.      (Sec.  11.) 

Order  the  Company  to  dispose  of  property  no  longer  of  service 
to  the  Company  and  provide  for  its  amortization  over  a  period 
not  to  exceed  ten  years.     (Sec.  13.) 

Permit  the  Company  to  set  aside  durinsr  the  war  and  for  one 
year  thereafter,  a  smaller  amount  for  depreciation  than  would  be 
considered  adequate  in  normal  times.     (Sec.  13.) 

The  Resident  Supervisors  shall : 

"  Keep  in  constant  touch  with  the  operation  of  the  companies, 
and  inform  the  Commission  of  all  complaints  and  criticisms  of 
the  service  rendered."     (Sec.  11.) 

Tn  addition  to  these  specific  powers  and  duties,  the  Public  Ser- 
vice Commission  retains  all  of  the  powers  and  duties  conferred 
upon  it  by  the  general  street  railway  laws  of  the  State.     (Sec.  1.) 

Montreal 

The  Montreal  Tramways  Commission  — 

Has  the  power  and  jurisdiction  over  service  enumerated  in  C-2  ; 

Has  the  power  and  jurisdiction  over  construction,  maintenance 
and  repairs,  enumerated  in  C-3 ; 

Has  the  power  and  jurisdiction  over  extensions,  betterments 
and  permanent  improvements  enumerated  in  0-4; 

Has  the  power  and  jurisdiction  over  capitalization,  finances  and 
accounts  enumerated  in  C-5 ; 

Has  the  power  and  jurisdiction  over  the  use  of  tracks  and 
facilities  by  other  companies  enumerated  in  C-6 ; 

Shall  hear  and  decide  all  complaints  made  either  verbally  or  in 
writing  by  any  person  whatsoever  (Art.  13)  ; 


132 


Service  At  Cost  Agreements 


I 


§ 
■I.  I 


•  f 


Shall  make  a  report  each  year  to  the  City,  covering  the  Com- 
pany's capital  and  other  accounts  relative  to  the  maintenance  and 
renewals,  reserve  and  toll  reductions  fund?  (Art.  19) ; 

May  revoke  or  change  any  decision  made  by  it,  unless  an  appeal 
to  the  Quebec  Public  Utilities  Commission  has  already  been  taken 
(Art.  21) ; 

May  decide  whether  it  is  necessary  to  remove  and  replace  the 
tracks  of  the  Company,  in  order  that  the  City  may  carry  on  street 
improvements  (Art.  48)  ; 

Shall  supervise  any  work  imposed  upon  the  Company  by  the 
agreement  (Art.  70);  "^     ' 

Shall  pass  upon  any  contract  made  by  the  Company  involving 
an  expenditure  of  more  than  $.50,000,  unless  such  expenditure  is 
to  be  charged  to  the  money  available  for  distribution  to  the  Com- 
pany's stockholders,  or  which  would  be  available  if  the  dividends 
to  be  paid  upon  stock  was  not  limited  by  the  agreement  to  ten  per 
cent  (Art.  Tl) ; 

Shall  fix  and  amend  the  passenger  tariffs  of  the  Company  f  Art 
70);  r     .    V       • 

Shall  decide  whether  or  not  a  charge  shall  be  made  for  transfer* 
(Art.  77) ; 

Shall  pass  upon  the  equity  of  agreements  made  the  Federal 
Government  for  the  carrying  of  mail  (Art.  82)  ; 

Shall  decide  whether  the  Company  shall  be  allowed  to  carry 
freight,  and  if  it  permits  the  carrying  of  freight,  shall  designate 
routes  and  the  hours  of  the  day  and  night  during  which  freight 
may  be  carried  (Art.  83)  ; 

Shall  fix  the  freight  tariffs  of  the  Company  (Art.  83) ; 

Shall  establish,  with  the  approval  of  the  Quebec  Public  Utilities 
Commission  rules  for  freight  transportation,  the  kind  of  commodi- 
ties that  may  be  transported  and  designate  loading  and  unloading 
places  (Art.  83) ; 

May  require  the  Company  to  establish  autobus  service,  when 
and  where,  in  its  opinion  the  conditions  of  traffic  warrants  and  the 
financial  conditions  permit  (Art.  89)  ; 

Shall  ^x  the  operating  allowance  each  year  (Art.  92,  Par.  1)  ; 

Shall  ^x  the  permissible  average  car-mile  density  each  year 
(Art.  92,  Par.  1)  ; 


^w  *- 


Service  At  Cost  Agreements 


133 


Shall  decide  whether  any  part  or  all  of  expenditiH-es  in  excess 
of  102%  P^r  cent,  of  the  operating  allowance  shall  be  charged  to 
gross  revenues  or  taken  from  the  guarantee  fund  (see  H-2)  (Art. 
92,  Par.  1)  ; 

May  increase  or  decrease  the  maintenance  allowance  (see  E-2- 
b-61),  except  that  it  may  not  be  decreased  below  an  amount  which 
will  insure  a  minimum  of  $500,000  in  the  maintenance  and  re- 
newals fund  (see  E-2-b-61)  (Art.  92,  Par.  2)  ; 

Shall  direct  the  disposal  of  worn  out  or  obsolete  property,  sub- 
ject to  the  provisions  of  any  existing  trust  deed  (Art.  92,  Par.  2)  ; 

Shall  supervise  the  extensions,  betterments  and  permanent  im- 
provements, made  by  its  orders  or  with  its  consent  (Art.  92, 
Par.  3) ; 

Shall  require  the  Company  to  provide  working  capital,  as  and 
when  needed  (Art.  92,  Par.  3)  ; 

Shall  administer  the  tolls  reduction  fund  (ese  F.2)  (Art.  92, 
Par.  6)  ; 

Shall  recover  by  proceedings  before  the  Eecorder's  Court  of 
Montreal,  fines  and  penalties  incurred  by  the  Company  for  failure 
to  obey  its  orders  (Art.  96). 


■It 


^!l 


,! 


Eastern  Massachusetts 
The  Board  of  Trustees  shall : 

^lanage  and  operate  the  company,  including  the  receiving  and 
disbursement  of  its  funds.     (Sec.  11.) 

Exercise  all  the  rights  and  powers  of  the  Company  and  its 
oflicers.     (Sec.  11.) 

Appoint  and  remove  in  their  discretion  the  officers  of  the  Com- 
pany.    (Sec.  11.) 

Eix  and  regulate  fares,  including  the  issue,  and  withdrawal  of 
transfers  and  the  imposition  of  charges  therefor.     (Sec.  11.) 

Determine  the  character  and  extent  of  service  and  facilities  to 
be  furnished.     (Sec.  11.) 

Contract  for  the  construction,  acquisition,  rental  or  operation  of 
new  lines,  and  for  the  extension,  sale  or  lease  of  existing  lines, 
subject  to  the  consent  of  the  Board  of  Directors  of  the  Company 
except  when  the  Public  Service  Commission  shall  determine  that 
public  necessity  and  convenience  require  such  action  and  that  the 


ii 


r< 


I  'M 


134 


Service  At  Cost  Agreements 


I 


jM. 


f 


return  upon  securities  authorized  bj  the  Act  will  not  be  impaired. 
(Sec.  12.) 

Make  such  other  contracts  as  may  be  necessary  for  the  opera- 
tion of  the  property.     (Sec.  13.) 

Issue,  stock,  bonds  and  other  evidences  of  indebtedness,  for  and 
in  behalf  of  the  Company.     (Sec.  13.) 

Make  such  allowances  to  the  Company's  Board  of  Directors-  for 
corporation  expenses  as  it  may  consider  necessary.     (Sec.  13.) 

Distribute  among  the  security-  and  stockholders  of  the  Com- 
pany, as  their  interests  may  appear,  any  income  applicable  to  in- 
terest and  dividends.     (Sec.  14.) 

Fix  the  initial  rate  of  fare  to  be  charged  and  maintain  at  all 
times  a  schedule  of  at  least  four  grades  of  fare,  two  above  and  two 
below  the  rate  of  fare  in  effect.     (Sec.  15.) 

Adjust  fares  to  meet  the  cost  of  service,  in  accordance  with  the 
state  of  the  Reserve  Fund.     (Sec.  17.) 

Create  within  the  two  main  Fare  Areas,  provided  by  the  Act, 
such  other  smaller  Fare  Areas  as  in  its  judgment  is"^  required! 
(Sec.  15.) 

Provide  for  cities  or  towns,  desiring  to  contribute  to  the  cost  of 
service  in  order  to  reduce  fares,  a  statement  of  the  increase  in  the 
cost  of  wages,  supply  and  fuel  over  the  average  maintaining  for 
the  year  ending  July  1,  1914,  and  make  such  reasonable  adjust- 
ment of  fares-  in  cities  and  towns  making  such  contributions  as 
seems  to  it  equitable.      (Sec.  15.) 

Allocate  the  cost  of  service  as  between  the  different  Fare  iVreas, 
both  those  instituted  by  the  Act,  and  those  instituted  by  itself! 
(Sec.  15.) 

Increase  the  amount  of  the  Reserve  Fund  by  accretion?  from 
the  sale  of  stocks  or  bonds,  if  it  deems  it  advisable  so  to  do  in 
order  to  prevent  too  frequent  fluctuations  in  fares.     (Sec.  17.) 

Suspend,  during  the  period  of  the  war  and  for  two  years  after, 
with  the  approval  of  the  Public  Service  Commission,  amortization 
and  depreciation  charges.     (Sec.  17.) 

Provide  the  period  of  amortization  of  discount  on  bonds  au- 
thorized by  the  Act  and  sold  under  its  authority.     (Sec.  7.) 

Agree  with  the  purchasers  of  $4,000,000  of  the  $5,000,000 
special  issue  of  serial  bonds,  authorized  by  the  Act,  that  if  the 


14. 


Service  At  Cost  AoREEArENTs 


135 


earnings  of  the  Company  is-  insufficient  to  meet  the  installments 
of  principal,  when  due,  that  such  installments  shall  be  paid  by  the 
State,  which  acting  for  the  cities  and  towns  served  by  the  Com- 
pany, shall  purchase  bonds  of  a  par  value  sufficient  to  cover  the 
amount  of  such  payment  by  the  State,  and  shall  hold  such  bonds 
on  account  of  the  cities  and  towns,  against  whom  their  cost  shall 
be  assessed.  Bonds  so  held  shall  be  repurchased  as  income  of 
Company  permits.     (Sec.  9.) 


.Ill 


'III 


Westerville 
The  Commission  shall: 

Approve  changes  in  motive  power.     (Sec.  3.) 

Have  power  to  grant  permission  for  the  construction  of  double 
track,  switches  and  turnouts,  reasonably  necessary  in  the  opera- 
tion of  the  property.     (Sec.  4.) 

Establish  grades  to  which  the  Company  shall  conform,  (Sec. 
5.)  • 

In  the  event  that  the  Company  shall  within  thirty  days  after 
the  receipt  of  written  notice,  fail  to  perform  the  work  in  connec- 
tion with  construction,  maintenance  or  repair  road  improvements 
specified  in  the  Grant,  proceed  with  such  work,  the  cost  of  which 
shall  be  charged  against  the  Company  and  become  a  lien  upon  its 
property  and  franchise,     (Sec.  6.) 

Fix  and  alter  schedules,  increase  and  diminish  service  and  es- 
tablish stops,  subject  to  the  provision  that  service  shall  not  be 
required  to  an  extent  that  would  affect  the  Company's  ability  to 
earn  its  fixed  return,  and  subject  to  the  further  provision  that 
when  the  Grant  has  less  than  fifteen  years  to  run  control  passes 
from  the  Commissioners  to  the  Company.     (Sec.  7.) 

Approve,  overlapping  fare  zones  proposed  by  the  Company,  or 
proposed  overlapping  zones  to  be  approved  by  the  Company,  in 
addition  to  the  fixed  fare  zones  provided  by  the  Grant,  subject  to 
the  reference  of  their  decision  to  a  Board  of  Arbitration.      (Sec. 

n.) 

Pass  upon  commuters'  rate?  proposed  by  the  Company.  Such 
rates  can  be  established  only  if  the  Commissioners  approve. 
(Sec.  12.) 


(  < 


J , 


*» 


f 


136 


Service  At  Cost  Agreemexts 


i 


fllif! 


Lower  the  rate  of  fare  at  any  monthly  period  when  thq  Work- 
ing  Capital  shall  equal  or  exceed  $35,000. 

Pass  npon  the  apportionment  of  salaries  and  other  expenses  as 
betwc-en  the  Westerville  division,  and  other  portions  of  the  Com- 
pany's lines,  and  if  of  the  opinion  that  such  apix)rtionment  is  un- 
fair, submit  the  question  to  a  Board  of  Arbitration.      (Sec.  13.) 

Propose  such  Extensions,  Betterments  and  Permanent  Im- 
provements, as  they  believe  are  required,  and  pass  upon  such  pro- 
posals for  the  same  purpose  as  may  be  made  by  the  Company. 
(Sec.  14.) 

If  at  any  time  the  County,  or  any  governmental  division 
thereof,  shall  decide  to  purchase  the  property,  serve  six  months' 
notice  upon  the  Company  of  such  intention  to  purchase.  (Sec. 
15.) 

Have  access  to  the  books,  records  and  accounts  of  the  Company, 
for  the  purpose  of  ascertaining  all  facts  in  connection  with  the 
operation  of  the  property  or  the  carrying  out  of  the  provisions  of 
the  Grant.     (Sec.  16.) 

In  the  event  of  arbitration,  select  the  arbitrator  who  shall  repre- 
sent the  County  on  the  Board  of  Arbitration.     (Sec.  IS.) 

Baixas 

The  Supervisor  is  charged  with : 

The  supervision  of  the  construction,  maintenance  and  operation 
of  the  Company,  subject  to  City  ordinances  enacted  prior  to  or 
after  the  taking  effect  of  the  Grant.  (Sees.  3  and  4.)  He  must 
keep  informed  as  to  all  matters  in  connection  with  the  construc- 
tion, maintenance  and  operation  of  the  Company,  including  the 
property  leased  from  the  Northern  Texas  Traction  Co.     (Sec.  1)  ; 

The  supervision  of  the  expenditures  and  methods  of  the  Com- 
pany in  regard  to  contracts  for  supplies,  the  employment  of  labor 
and  other  matters,  and  if  he  regards  such  expenditures  and 
methode  wasteful  he  must  so  notify  Company  and  make  sugges- 
tions for  their  correction  (Sec.  29)  ; 

The  supervision  of  the  Company's  methods  of  vouching  ex- 
penditures and  the  keeping  of  accounts;  the  inspection  and  audit- 
ing of  records  and  accounts;  ^he  inspection  of  the  Company's 
propei-ty  and  its  property  records  (Sec.  11)  ; 


Service  At  Cost  Agreements 


137 


The  approval  or  disapproval  of  the  monthly  operating  and 
financial  statements  required  of  the  Company  under  the  terms  of 
the  Grant  (Sec.  12); 

The  approval  or  disapproval  (except  in  the  case  of  Extensions, 
or  of  Extensions,  Betterments  and  Improvements  submitted  by 
him  to  the  Board  of  Commissioners)  of  all  requisitions  prepared 
by  the  Company  in  reference  to  Extensions,  Betterments  and  Im- 
provements, whether,  in  the  case  of  ordinary  proposals,  submitted 
before  the  actual  work  has-  begun,  or,  in  the  case  of  emergency 
construction,  submitted  after  the  work  (Sec.  97)  ; 

The  preparation  of  requisitions  for  Extensions,  Betterments 
and  Improvements,  in  case  that  the  Company  fails  to  prepare 
them  (Sec.  27) ; 

The  checking  of  all  estimates  for  Extensions-,  Betterments  and 
Improvements,  and  the  checking  of  all  materials  used,  labor  em- 
ployed and  other  cost  of  the  same  (Sec.  27) ; 

The  decisions  as  to  whether  the  Company  shall  be  allowed  to 
submit  blanket  requisitions-  for  Extensions,  Betterments  and  Im- 
provements (Sec.  27)  ; 

Papers  and  records  may  not  be  removed  from  the  Dallas  office 
of  the  Company  without  the  consent  of  the  Supervisor  (Sec  11)  ; 

The  Supervisor  is-  required  to  secure  from  the  Company  from 
time  to  time  certified  lists  of  its  stockholders  (Sec.  11)  ; 

The  Board  of  Commissioners 

Is  in  control  of  the  design  and  equipment  of  cars,  and  the  kind 
of  improvements  to  be  used  thereon  (Sec.  10)  ; 

Fixes  schedules,  designates  stops  and  promulgates  rules  and 
regulations  for  the  running  of  cars  (Sec.  10)  ; 

Regulates  method  of  selling  tickets  provided  for  in  schedule  of 
rates  provided  in  Grant  (Sec.  23)  ; 

Passes  upon  rates  proposed  by  Company  for  special  car  and 
other  service  (Sec.  23)  ; 

Passes  upon  transfer  regulations  proposed  by  the  Company 

(Sec.  23) ; 

Passes  upon  applications  of  Interurbans  for  permission  to  use 
Company's  tracks,  and  in  case  of  disagreement  as  to  compensa- 
tion to  be  paid  therefor,  may  dissent  from  award  of  Arbitration 
Board  and  fix  a  sum,  which  must  be  accepted  by  both  parties  (Sec. 

8); 


II" 


I  I 


It 


I 


ns 


Servk  E  At  Cost  Agreements 


Passes  upon  the  application  of  the  four  interurban  Companies 
which  the  Grant  requires  the  Company  to  permit  to  enter  into 
Terminal  and  to  participate  in  lease  thereof  during  the  first  ten 
rears  after  Grant  takes  effect  irrespective  of  the  effect  upon  the 
Company's  ability  to  earn  its  stipulated  return.     (Sec.  37.) 

Passes  upon  the  application  of  any  interurban  to  use  the  Termi- 
nal after  the  expiration  of  ten  years,  or  the  admission  of  four  in- 
tenirban  companies  thereto.     (Sec.  37.) 

May  order  additions  to  the  facilities  of  the  Terminal.  (Sec 
37.)  ^      ' 

Must  pass  upon  any  proposed  changes  in  Terminal  lease;  must 
approve  price  to  be  paid  for  Terminal  in  the  event  that  it  is  sold 
under  the  option  granted  to  lessees  in  lease,  and  the  price  to  be 
paid  for  any  remaining  property  in  the  event  of  its  destruction  bv 
fire  or  other  calamity.     (Sec.  37.) 

Passes  upon  applications  of  the  Company,  or  other  Companies 
or  individuals  in  the  matter  of  joint  use  of  poles  and  fixes  com- 
pensation.    (Sec.  3.) 

Must  approve  any  change  in  motive  power.     (Sec.  3.) 
May  authorize  the  abatement  or  removal  by  the  Supervisor  of 
any  Company  building  which  it  deems  to  be  dangerous  to  life  or 
property,  without  incurring  liability  on  the  part  of  the  City 
(Sec.  4.) 

Order  changes  in  tracks  or  wires  of  the  Companv,  to  permit  of 
^alterations  in  location  of  water  pipes  and  other  underjrround 
stTTietures.  Such  changes  shall  be  made  without  cost  to  City. 
In  the  case  of  persons  or  corporations  other  than  the  City,  com- 
pensation for  the  expenses  involved  shall  be  made.     (Sec.  5.) 

Decides  where  and  when  paving  shall  be  done  in  the  streets  by 
the  Company,  except  that  the  Company  may  not  be  required  to 
pave  any  part  of  the  street  unless  the  full  width  of  the  street  is  to 
be  paved.  This  authority  to  order  pavement  applies  to  rights  of 
way  claimed  to  be  owned  by  the  Company,  in  the  case  of  which, 
however,  the  Company  may,  in  lieu  of  pavement,  construct  what  is 
known  as  "  park  space."     (Sec.  6.) 

Shall  select  sites  for  power  houses,  car  barns,  substations,  shops 
and  other  buildings  which  the  Company  may  desire  to  construct. 


Service  At  Cost  Agreements 


139 


After  buildings  are  erected  on  the  sites  selected  by  the  Commis- 
sioners they  shall  not  be  ordered  moved  by  the  Commissioners, 
unless  the  Company  is  compensated  for  the  expenses  involved. 
(Sec.  30.) 

Must  give  its  approval  before  the  removal  to  other  locations  of 
existing  structures.     (Sec.  30.) 

Must  give  its  approval  before  track,  or  service  upon  track  may 
be  abandoned.     (Sec.  30.) 

May  require  the  removal  of  tracks  from  one  street  to  another  if 
conditions  of  traffic  require.  No  changes  in  track  location  may 
be  made  without  its  approval.     (Sec.  30.) 

May  direct  the  Company  to  sprinkle  streets  and  fix  the  com- 
pensation therefor.      (Sec.  34.) 

^lay  permit  the  carriage  of  freight  and  express  by  the  Com- 
pany.    (Sec.  32.) 

Supervise  and  directs  the  expenditure  of  the  $1,000,000  which, 
under  the  terms  of  the  Grant,  the  Company  agrees  to  expend  for 
Extensions,  Betterments  and  Improvements,  within  18  months 
after  Grant  takes  effect.     (Sec.  28.) 

Passes  upon  all  requisitions  for  Extensions.     (Sec.  27.) 

Passes  upon  all  requisitions-  for  Extensions,  Betterments  and 
Improvements  which  may  be  submitted  to  it  by  the  Supervisor. 
(Sec.  78.) 

May  allow  or  disallow  proposals  for  Extensions,  Betterments 
and  Improvements  outside  of  City,  except  when  such  Extensions, 
Betterments  and  Improvements  are  required  to  be  made  by  law. 
(Sec.  27.) 

Shall  agree  with  Company  as  to  designation  of  any  Extensions, 
Betterments  and  Improvements  which  shall  be  allowed  a  cumula- 
tive return  in  the  event  of  the  purchase  of  the  property  by  the 
City  or  a  license  of  City.     (Sec.  40.) 

Passes  upon  the  use  of  proceeds  from  the  sale  of  abandoned  or 
obsolete  property,  whether  it  may  be  used  for  Extensions,  Bet- 
terments, or  Improvements  or  for  the  reduction  of  the  Company's 
indebtedness.     (Sec.  20.) 

Shall  act  for  the  City  in  case  of  Arbitration  demanding  arbi- 
tration on  behalf  of  the  City,  appoint  the  City's  Arbitrators  and 
fix  the  fees  of  Arbitrators.     (Sec.  13.) 


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140 


Service  At  Cost  Agreements 


Confirms  and  certifies  security  issues  when  requested  so  to  do 
by  the  Company.     (Sec.  19.) 

Shall  require  the  Company  to  keep  its  property  insured  and 
passes  upon  the  distribution  of  insurance  payments  received 
among  the  Company's  creditors.     (Sec.  20.) 

May  by  agreement  with  the  Company  revise  the  provisions  of 
the  Grant  which  fix  the  "  normal  condition  "  of  Accident,  Surplus 
and   Repairs,   Maintenance   and   Depreciation   Reserves.     (Sec 
22.) 

Decides  as  to  the  investment  of  the  money  in  these  reserves. 
(Sec.  22.) 

Passes  upon  proposals  to  increase  the  amount  of  Working 
Capital.     (Sec.  27.) 

Prescribes  the  manner  and  time  in  which  depreciation  required 
to  be  paid  upon  leased  property  shall  be  so  paid.     (Sec.  46.) 

Is  authorized,  under  the  conditions  prescribed,  to  declare  the 
Grant  forfeit.     (Sec.  42.) 

Must  give  its  approval  before  the  Grant  may  be  assigned  by  the 
Company.     (Sec.  44.) 

Appoints  and  removes  Supervisor.     (Sec.  11.) 

Audits  bills  of  Supervisor  in  connection  with  the  checking  of 

Extensions,  Betterments  and  Improvements.     (Sec.  27.) 

ShaU  appoint  one  of  its  members  to  act  as  ex-officio,  in  case  the 

provisions  of  the  Grant  relative  to  the  Supervisor  are  held  to  be 

invalid.     (Sec.  43.) 


The  Commission: 


Memphis 


May  provide  the  amount  of  the  Renewal  and  Replacement  and 
the  Injuries  and  Damages  Reserves ; 

Shall  modify  from  time  to  time  as  is  in  its  judgment  required 
the  method  of  keeping  accounts; 

Shall  prescribe  the  standard  of  service; 

Shall  approve  all  additions  to  or  deductions  from  Capital  Value  • 

Must  approve  all  investments  of  funds  in  the  Renewal  and 
Replacement  Reserve; 

Must  approve  all  expenditures  from  the  Renewal  and  Replace- 
ment Reserve; 


Service  At  Cost  Agreements 


141 


Must  approve  all  investment  of  funds  in  the  Injuries  and  Dam- 
age Reserve; 

Must  approve  the  amount  and  determine  the  method  of  making 
payments  to  the  Injuries  and  Damage  Reserve; 

May  make  investigation  of  the  Company's  aecounts,  the  seiTice 
furnished  by  it,  or  the  character  or  cost  of  the  service. 

Shall  consider  a  traffic  survey,  which  the  order  provides  shall 
be  made  if  the  City  so  desires  and  shall  base  recommondations  as 
to  service  thereon. 


9.— ARBITRATION 

(a)  Machinery  for 

Clevelai^d 

Disputes'  connected  with  accounting  methods  are  arbitrated  by 
the  Committee  on  Standard  Classification  of  Accounts  of  the 
American  Electric  Railway  Association.     (Sec.  10.) 

Disputes  arising  from  the  interpretation  of  the  Company's  con- 
tracts with  municipalities,  other  than  the  City  of  Cleveland,  are 
arbitrated  by  a  Board  consisting  of  one  representative  of  the  City 
of  Cleveland,  one  representative  of  the  other  municipality 
aifected,  and  a  third  to  be  appointed  as  provided  for  general 
arbitration  Boards.     (See  next  below.)      (Sec.  29.) 

All  other  arbitrable  disputes  are  submitted  to  a  Board  consist- 
ing of  one  representative  of  the  City,  one  representative  of  the 
Company,  and  a  third  member  to  be  selected  by  agreement  be- 
tween the  two,  or  in  the  event  that  they  are  unable  to  agree,  by  the 
United  States  District  Judge  for  the  District  in  which  Cleveland 
is  located,  or  in  the  event  of  his  disqualification,  or  refusal  to  act, 
by  the  United  States  Circuit  Judge  for  the  Cleveland  District. 
The  party  seeking  arbitration,  shall  notify  the  other  party  of  the 
selection  of  its  arbitrator  and  shall  at  the  same  time  furnish  a 
statement  of  the  question.  If  the  party  so  notified  does  not  within 
ten  days  appoint  its  arbitrator,  he  shall  be  appointed  by  the  first 
party.  If  the  third  arbitrator  is  appointed  by  a  United  States 
Judge,  such  judge  shall  give  at  least  three  days'  notice  of  his 
selection  to  both  the  City  and  the  Company,  who  may  file  ob- 
jections- to  such  selection.     A  majority  of  the  three  arbitrators 


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Service  At  Cost  Agreements 


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decide  the  questions  submitted.  Unless  the  Board  unanimously 
agrees  to  extend  the  time,  they  must  render  a  decision  within 
thirty  days  from  the  time  of  the  appointment  of  the  third  arbi- 
trator. If  the  decision  is  not  so  rendered,  either  party  at  interest 
may  apply  to  the  Federal  Judge  for  the  removal  of  the  third  arbi- 
trator and  the  appointment  of  a  new  arbitrator.  The  expenses  of 
arbitrator  shall  be  paid  by  the  Company  as  an  operating  expense, 
unless  in  any  six  months,  they  shall  exceed  $5,000,  in  which  case 
the  excess  shall  be  paid  from  the  Interest  Fund.     (Sec.  11.) 

YoUNfiSTOWN 

Disputes  connected  with  book-keeping  and  accounting  methods 
shall  be  arbitrated  by  the  Committee  on  A  Standard  Classification 
of  Accounts  of  the  American  Electric  Railway  Accountants'  As- 
sociation, or  other  persons  to  whom  supervision  of  accounting 
methods  may  be  delegated  by  law.     (Sec.  8.) 

All  other  arbitrable  disputes  shall  be  arbitrated  by  a  Board  of 
Arbitration  consisting  of  one  representative  of  the  City,  one  repre- 
sentative of  the  Company  and  a  third  to  be  selected  by  the  two,  or 
in  the  event  of  their  failure  to  agree  by  the  United  States  District 
Judge  for  the  District  in  which  Youngstown  is  located ;  or  in  the 
event  of  such  Judge's  refusal  or  disqualification  to  act,  by  the 
United  States  District  Judge  of  any  other  District. 

The  party  seeking  arbitration  shall  notify  the  second  party  of 
its  selection  of  an  arbitrator  and  at  the  same  time  submit  a  con- 
cise statement  of  the  question  to  be  arbitrated.  If  the  party  so 
notified  does  not  within  three  days  appoint  an  arbitrator,  then  on 
the  fourth  day,  the  party  seeking  arbitration  may  select  the  second 
arbitrator.  Within  three  days  after  the  selection  of  the  second 
arbitrator,  by  one  of  these  methods,  the  two  shall  select  the  third. 
Upon  failure  to  agree,  application  shall  be  made  to  the  United 
States  Judge,  as  explained  above,  a  statement  of  the  matter  to  be 
arbitrated,  being  furnished  to  the  Judge  at  the  time  of  the  applica- 
tion. Five  days  l>efore  making  an  appointment,  the  Judge  shall 
notifv^  of  his  selection  both  the  City  and  the  Company,  and  either 
of  the  parties  may  file  objections.     (Sec.  9-A.) 


Service  At  Cost  Agreements 


143 


A  majority  of  the  three  arbitrators  shall  decide  the  question 
submitted.  Unless  the  Board  unanimously  agrees  to  extend  the 
time,  the  Board's  decision  shall  be  rendered  within  20  days  from 
the  date  of  the  appointment  of  the  third  arbitrator.  Upon  failure 
to  agree  within  20  days,  either  party  may  apply  to  the  District 
Judge  for  the  removal  of  the  third  arbitrator  and  the  appointment 
of  another  person  in  his  place.     (Sec.  9-A.) 

The  same  question  shall  not  again  be  submitted  to  arbitration 
for  a  period  of  three  months  from  the  date  of  the  decision  of  the 
Board.     (Sec.  9-A.) 

Cincinnati 

Orders  of  the  Director  prescribing  service  may  be  objected  to  by 
the  Companies  within  ten  days  of  the  date  of  the  order.  The 
Director  shall  give  a  public  hearing  upon  such  objections.  His 
decision  after  such  a  hearing  shall  be  final.  •  In  case  the  Company 
refuses  compliance,  the  City  may  bring  action  in  a  court  of  com- 
petent jurisdiction,  and  the  Company  may  defend :  in  the  case  of 
orders  involving  Operating  Expenses  only  on  the  ground  that  the 
Budget  allowances  are  insufficient  to  enable  them  to  perform  their 
corporate  obligations,  maintain  their  organization  and  perform 
the  duties  imposed  by  the  Grant;  and,  in  the  case  of  orders  in- 
volving Capital  Expenditure,  only  on  the  ground  that  it  is  unable, 
using  due  diligence,  to  secure  the  necessary  capital.     (Sec.  8.) 

In  case  the  Company  refuses  to  obey  the  orders  of  the  Director 
as  to  bookkeeping  and  accounting  measures  the  dispute  shall  be 
referred  to  the  authorities  upon  whom  the  regulation  of  such  mat- 
ters may  from  time  to  time  devolve.  (Presumably  to  the  Ohio 
Public  Utilities  Commission.)      (Sec.  8.) 

In  case  of  disagreement  between  the  Company  and  the  Director 
as  to  the  amount  of  the  Annual  Budget  and  the  Supplements 
thereto,  the  Companies  shall  choose  one  Arbitrator  and  the  Di- 
rector one  Arbitrator,  within  five  days  of  the  notice  by  the 
Director  of  his  disapproval,  or  in  the  event  that  either  party  fails 
to  appoint  an  Arbitrator,  the  party  who  has  appointed  an  Arbi- 
trator shall  notify  the  Trustees  of  the  Sinking  Fund  of  the  City  of 
Cincinnati,  who  shall  within  five  days  of  such  notice  fill  the 
vacancy.     The  two  so  chosen  shall  within  five  days  appoint  a  third 


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Skkvk  E  At  Cost  Agreements 


Arbitratorj  and  upon  their  failure  so  to  do,  either  party  may  re- 
quest the  Arbitration  Committee  of  The  Cincinnati  Chamlx^r  of 
Oomnieree  to  make  such  appointment.  The  Board  thus  appointed 
Fhall  he  governed  by  the  rule  that  the  Company  shall  be  allowed 
sufficient  funds  to  perform  its  corporate  obligations,  maintain  its 
organization  and  perform  all  duties  of  operation  and  maintenance 
imposed  by  the  Grant.  The  decision  of  a  majority  of  the  Board 
shall  l>e  final,  Init  if  such  decision  l>e  not  renderc^i  within  45  davs 
after  the  submission  of  the  Annual  Budget  or  Supplement  thereto, 
the  expenditures  of  the  Companies  shall  be  in  accordance  with 
such  Budget  or  Supplement.      (Sec.  8.) 

In  the  event  that  the  Companies  and  railways  seeking  the  use 
of  their  facilities,  fail  to  agree  as  to  the  compensation  to  be 
charged  for  such  use,  or  the  Director  fails  to  approve  of  such 
agi'cement,  and  fix  the  com])ensation  to  be  paid,  the  right  to  use 
sucli  facilities  upon  the  terms  prescribed  by  the  Director,  may 
be  enforced  bv  the  railwav  seekinij  the  ric:ht,  in  anv  court  of  com- 
petent  jurisdiction  and  the  Companies  may  defend  upon  the 
ground^  that  the  compensation  fixed  by  the  Director  does  not  pro- 
vide the  total  cost  of  such  use  and  a  reasonable  return  upon  the 
investment  of  the  Companies.     (Sec.  8.) 

Tf  the  Companies  object  to  any  revision  of  their  rules  regu- 
latinc;  the  issuing  of  transfers,  made  by  the  Director,  they  may 
within  ten  days  of  the  date  of  the  publication  of  such  revision, 
file  objections'  with  the  Director.  The  Director  shall  then  hold  a 
publi'*  hearing.  His  decision  after  such  hearing  shall  become 
effective  at  the  time  specified  in  the  decision.     (Sec.  8.) 

Objections  to  schedules  of  charges  for  the  carriage  of 
freight,  express  matter  and  packages  filed  with  the  Director  by 
the  Companies,  may  be  made  by  any  person,  firm  or  corporation 
interested.  Within  30  days  after  the  Companies  have  been  served 
by  the  Director  with  notices  of  such  objection,  the  Director  shall 
hold  a  public  hearing  thereon.  His  decision,  after  this  hearing 
shfill  become  effective  at  the  end  of  30  days,  unles?  the  Com- 
panies shall  file  objections  with  the  Director  and  begin  proceed- 
ings in  a  court  of  competent  jurisdiction  on  the  grounds  that  the 
rates  fixed  by  the  Director  are  unreasonable.     (Sec.  20.) 


Service  At  Cost  Agreements 


145 


Boston 
'No  provision  is  made  for  arbitration.  In  the  event  that  the 
Trustees  desire  to  make  extensions  to,  construct,  or  purchase  sur- 
face lines,  beyond  the  limits  of  existing  lines  and  the  Board  of 
Directors  of  the  Company  refuses  consent,  on  the  ground  that  it 
entails  rentals,  or  other  obligations,  upon  the  Company  after  the 
period  of  public  management  and  control,  the  Trustees  are 
required  to  hold  a  public  hearing.  After  such  hearing  they  may, 
however,  decide  that  pul)lic  necessity  and  convenience  requires 
the  construction  of  tlie  proposed  line,  under  which  circumstances 
they  may  proceed  with  its  extension,  construction  or  purchase, 
despite  the  failure  of  the  Board  of  Directors  to  consent.    (Sec.  3.) 

Massachusetts  (General) 
If  a  majority  of  the  State  Directors  of  a  Company  believe  that 
a  particular  order  or  decision  of  the  Public  Service  Commission, 
would  impair  the  ability  to  pay  the  six  per  cent  return  on  its 
stock  investment,  they  shall  so  advise  the  Public  Service  Com- 
mission, and  if  after  reconsideration,  the  Commission  persists  in 
its  order,  the  Company  may  apply  to  the  Supreme  Judicial 
Court  of  the  State,  for  a  reversal  or  a  modification  of  the  order 
or  regulation.  The  Court  may  appoint  three  commissioners  to 
determine  the  facts  and  questions  at  issue,  and  their  report,  when 
confirmed  by  the  Court,  shall  be  final.     (Sec.  14.) 

Montreal 

The  right  of  appeal  to  the  Quebec  Public  Ttilities  Commis- 
sion, from  any  decision  of  the  Commission  on  any  question  of 
law  or  jurisdiction,  lies  with  any  party  to  the  agreement,  the 
Company,  City,  or  any  municipal  corporation  interested.  Deci- 
sions affecting  -the  following  matters  are  specifically  subject  to 
appeal:  the  expenses  of  the  Commission  to  be  paid  by  the  Com- 
pany for  payment ;  agreements  relating  to  the  use  of  tracks  and 
facilities  by  other  companies  and  the  connection  with  tracks  of 
other  companies;  the  adoption  or  improvements  and  betterments 
to  track,  rolling  stock  and  other  equipment;  modifications,  addi- 
tions, reconstructions,  alterations  and  repairs  to  pavements,  roll- 
ing stock  and  other  things  pertaining  to  the  system  ordered  by 


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Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


147 


the  Commission,  when  the  expenditure  involved  is  more  than 
$50,000 ;  the  Commission's  decision  as  to  the  time  in  which  spe- 
cific additions  and  extensions  provided  for  in  the  agreement  shall 
be  made;  orders  of  the  Commission  requiring  the  Company  to 
build   and  operate  new  lines;    Commission   decisions   involving 
contracts  made  by  the  Company  when  the  expenditure  is  more 
than  $50,000;  decisions  of  the  Commission  as  to  passenger  tar- 
iffs ;  decisions  of  the  Commission  involving  freight  tariffs ;  deci- 
sions of  the  Commiss^ion  requiring  materials  used  by  the'  Com- 
pany to  be  manufactured  in  Company  shops  within  the  limits 
of  the  City  of  Montreal;  decisions  of  the  Commission  affecting 
the  giirantee  fund,  the  disposition  of  gross  revenues,  the  fixing 
of  operating  and  maintenance  allowances   and  the  permissible 
average  density  of  traffic  per  car-mile,  the  maintenance  and  renew- 
als  fund ;  the  return  upon  capital  value,  the  contingent  reserve 
fund,  the  division  of  surplus,  the  infliction  of  penalties.     (Art. 

Hotice  of  every  appealable  decision  must  be  given  by  the  Cora- 
mission  without  delay,  to  the  City,  Company  and  to  any  other 
party  in  the  case,  by  serving  a  copy  of  such  decision  either  by 
registered  mail  or  by  a  bailiff  of  the  Superior  Court  (Art.  11)  ; 
appeal  shall  be  made  within  15  days  of  the  serving  of  such  notice! 
(Art.  15.) 

Eastern  Massachusetts 
While  there  is  no  specific  provision  for  arbitration,  the  Act 
provides  that  in  ease  the  Board  of  Directors  refuses  to  give  its 
consent  to  contracts  for  the  construction,  acquisition,  rental  of 
operation  of  new  lines,  or  the  extcAsion,  sale  or  lease  of  existing 
lines,  the  Public  Service  Commission  shall  decide,  whether  such 
action  is  dictated  by  public  convenience  and  necessity,  and 
whether  the  return  on  the  securities  authorized  by  the  Act  is 
impaired.  If  the  Company  disagrees  with  the  decision  of  the 
Commission,  it  may  appeal  to  the  State  Supreme  Judicial  Court 
(Sec.  12.) 

Moreover,  the  State  Supreme  Judicial  Court  has  jurisdiction 
to  review,  annul,  modify,  amend  or  enforce  rulings,  or  orders  of 
the  Trustees,  to  the  same  extent  that  it  has  jurisdiction  over  the 
orders  and  rulings  of  the  Public  Service  Commission.     (Sec.  22.) 


Westerville 

In  the  event  of  a  dispute  between  the  Commissioners  and  the 
Company  involving  a  matter  which  may  be  legally  arbitrated, 
either  party  desiring  arbitration  shall  serve  notice  in  writing 
upon  the  other  party,  stating  the  question  upon  which  arbitration 
is  desired  and  naming  its  representative  upon  the  Arbitration 
Board.  Within  ten  days  thereafter,  the  party  so  notified  shall 
name  its  representative  upon  the  Board  and  so  notify  the  first 
pai*ty.  Within  ten  days  after  the  appointment  of  the  second  arbi- 
trator, the  two  arbitrators-  thus  selected  shall  agree  upon  the  third 
member  of  the  Board.  If  they  shall  within  ten  days  fail  to 
agree,  or  if  either  party  shall  fail  or  refuse  to  name  an  arbitrator, 
either  may  apply  to  a  judge  of  the  Court  of  Appeals  of 
Franklin  County,  and  such  judge  shall  have  power  to  designate 
such  arbitrator,  provided  that  the  party  making  the  application 
must  give  not  less  than  five  days'  noti<?e  to  the  other  party,  and 
if  this  party  1^  in  default,  it  may  within  the  five  days-  name  an 
arbitrator,  as  originally  entitled. 

Dallas 

In  the  event  of  disagreement  as  to  any  of  the  matter's  covered 
by  the  Grant  which  may  be  lawfully  arbitrated  and  which  are  not 
excluded  from  arbitration  by  the  terms  of  the  Grant,  either  the 
City  or  the  Company  may  demand  arbitration.  The  party  so 
demanding  arbitration  shall  notify  the  opposing  party,  giving 
the  name  of  an  arbitrator  selected  by  it,  and  a  statement  of  the 
matter  upon  which  arbitration  is  desired.  Within  fifteen  days 
after  such  notice,  the  party  so  notified  shall  select  and  notify  the 
other  party  of  the  selection  of  its  arbitrator.  If  it  shall  not  so 
select  and  notify  within  the  fifteen  days,  the  first  party  may  name 
the  second  arbitrator.  Within  fifteen  days  after  the  selection  of 
the  second  arbitrator,  the  two  shall  select  the  third  arbitrator.  If 
they  are  unable  to  agree,  either  party  may  apply  to  the  Chief 
Justice  of  the  Supreme  Court  of  Texas,  stating  the  matter  to  be 
arbitrated  and  notifying  the  other  party  to  the  arbitration.  In 
the  event  of  the  disqualification,  absence  from  the  State  or  fail- 
ure to  act  of  the  Chief  Justice,  application  may  be  made  in  the 
same  manner  to  the  Associate  Justices  of  the  Supreme  Court  in 


ill 


'f 


1 1 


n\ 


148 


Service  At  Cost  Agreements 


tile  order  of  their  seniority;  in  the  event  of  disqualification,  etc., 
to  the  Chief  Justice  of  the  Court  of  Civil  Appeals  for  the  Fifth 
Supreme  Judicial  District  of  Texas;  in  the  event  of  his  disquali- 
fication, etc.,  to  the  Associate  Justices  of  said  Court  in  order  of 
seniority;  in  the  event  of  their  disqualification,  etc.,  to  the 
Judges  of  the  District  Courts  of  Dallas  County,  in  the  order  of 
their  seniority,  and  in  the  event  of  their  disqualification,  etc.,  to 
the  Judge  of  any  District  Court  of  Texas.     (Sec.  13.) 

The  arbitrators  shall  be  persons  of  skill  and  ability  in  the  mat- 
ter to  be  arbitrated  and  not  pecuniarily  interested.  The  third 
arbitrator,  imless  selected  by  the  other  two,  shall  not  be  a  resi- 
dent of  Dallas.  In  the  event  that  the  matter  submitted  for  arbi- 
tration involves  the  legal  interpretation  of  the  Grant,  the  arbitra- 
tors selected  shall  be  attorneys  entitled  to  practice  in  the  Courta 
of  Texas.     (Sec.  13.) 

If  during  the  course  of  an  arbitration,  there  shall  arise  ques- 
tions involving  the  legal  interpretation  of  the  Grant,  such  arbi- 
tration shall  be  suspended  untU  the  legal  question  shall  be 
decided  in  the  manner  provided  in  the  Grant  (i.  e.,  by  arbitra- 
tion).    (Sec.  13.) 

Before  makins?  appointment  of  the  third  arbitrator,  the  Judije 
making  such  appointment  shall  give  ten  days'  notice  to  both  par- 
ties of  his  selection,  and  either  party  shall  have  the  right  to 
object  to  such  selection.     (Sec.  13.) 

Before  entering  upon  their  duties,  arbitrators  shall  take  oath 
before  a  JSTotary  Public  to  faithfully  and  impartially  perform 
the  duties  of  their  office.     (Sec.  13.) 

In  the  event  of  the  death,  disqualification,  or  failure  to  act  of 
an  Arbitrator,  another  shall  be  appointed  within  30  days  from 
the  date  of  such  event,  in  the  manner  prescribed  for  the  original 
appointment.     (Sec.  13.) 

Unless  the  time  shall  be  extended  by  unanimous  agreement, 
the  Board  of  Arbitration  shall  announce  its  decision,  within  30 
days  of  the  date  of  the  appointment  of  the  third  Arbitrator,  fail- 
ing to  do  so,  the  third  Arbitrator  shall  ipso  facto  cease  to  be  a 
member  of  the  Board,  and  a  new  third  arbitrator  shall  be 
appointed  in  the  manner  provided.     (Sec.  13.) 


Service  At  Cost  Agreemexts 


149 


The  lease,  which  by  the  terms  of  the  Grant,  the  Company  is 
authorized  to  make  such  interurban  companies,  using  the  Ter- 
minal, the  purchase  of  which  is  also  authorized  by  the  Grant, 
contains  provision  for  the  arbitration  of  matters  arising  under 
its  terms,  and  the  Grant  designates  certain  matters  to  be  thus 
arbitrated.     The  following  matters  are  thus  provided  for: 

The  price  to  be  paid  for  the  Terminal  by  any  Lessee  exercising 
its  option  to  piirchase  thereunder.  Such  arbitration  to  be  con- 
ducted in  the  manner  provided  in  the  lease,  and  the  Company  to 
select  as  its  Arbitrator,  such  person  as  may  be  selected  by  the 
City.     (Sec.  37.) 

Memphis 
"No  provisions. 


II 


(b)  Powers  of  Arbitration  Authorities 

Cleveland 

The  Board  is  empowered  to  determine  all  questions  arising 
between  the  City  and  the  Company,  except  those  expressly 
exempted  by  the  terms  of  the  Grant.     (Sec.  12.) 

Such  exemptions  are: 

Questions  affecting  the  right  of  the  City  to  control  service,  and 
the  fixing  of  schedules  or  routes,  except  where  the  Company 
alleges  that  the  City  requirements  would  jeopardize  the  return  to 
the  Company,  even  under  the  highest  rate  of  fare  provided  in  the 
Grant.     (Sec.  9.) 

The  right  to  include  certain  expenditures  for  the  extension, 
betterment  and  improvement  of  suburban  lines,  which  is  to  be 
determined  by  agreement  between  the  City  and  the  Company. 
(Sec.  29.) 

In  addition  to  the  general  subjects  for  arbitration  it  is  specifi- 
cally provided  for  in  the  following  cases: 

When  the  Company  claims  that  it  cannot  provide  the  service 
required  by  the  City  under  the  highest  rate  of  fare  provided  in 
the  Grant,  without  jeopardizing  return.     (Sec.  9.) 

When  the  Company  claims  additional  car-mile  allowance  for 
the  operation  of  rush  hour  service.     (Sec.  18.) 


150 


Service  At  Cost  Agijkements 


ii 


In  the  event  of  a  dispute  over  the  necessity  of  increasing  or  de- 
creasing the  Operating  Allowance.     (Sec.  19.) 

In  the  event  of  a  dispute  over  the  necessity  of  increasing  or 
decreasing  the  Maintenance,  Renewals  and  Replacement  Allow- 
ance.    (Sec.  19.) 

In  the  event  of  a  dispute  as  to  the  necessity  of  increasing  or 
decreasing  the  rate  of  fare,  otherwise  than  provided  in  the  Grant. 
(Sec.  23.) 

In  the  event  of  a  dispute  as  to  proper  charges  against  "  exten- 
sions, betterments  and  permanent  improvements."     (Sec.  26.) 

In  the  event  as  to  a  dispute  as  to  whether  extensions,  he'ter- 
ments  and  permanent  improvements  proposed,  can  he  made  with- 
out jeopardizing  Company's  return,  or  a  dispute  as  to  the  ability 
of  the  Company  to  raise  the  capital  required  for  such  purpose. 
(Sec.  27.) 

In  the  event  of  a  dispute  as  to  whether  the  methods  and  prac- 
tices of  the  Company  in  the  collection  of  revenue  and  in  the  grant- 
ing of  free  transportation  is  wasteful.     (Sec.  30.) 

All  matters  affecting  the  Grant,  not  especially  excluded  from 
arbitration  by  the  terms  of  the  Grant,  may  be  arbitrated.  (Sec. 
9.)     The  exclusions  are: 

The  sum  fixed  as  Capital  Value  and  the  addition  of  the  item-s 
provided  by  the  terms  of  the  grant.     (Sec.  9.) 

The  rate  of  return  allowed  to  the  Company  under  the  terms 
of  the  grant.     (Sec.  9.) 

The  method  of  accounting,  arbitration  of  which  is  provided  for 
otherwise.     (Sec.  9.) 

The  right  of  the  City  to  prescribe  the  service,  except  where  it 
is  claimed  that  any  rate  of  fare  provided  in  the  grant  will  not 
cover  the  cost  of  the  senice  demanded.     (Sec.  9.) 

The  question  of  putting  in  force  intermediate  rates  of  fare  not 
provided  by  the  grant,  which  many  only  be  done  by  agreement 
between  the  City  and  the  Company.    (Sec.  14.) 

The  duty  of  the  Company  to  expend  within  a  period  of  five 
years,  the  sum  of  $750,000  for  Extensions,  Betterments  and 
Permanent  Improvements.     (Sec.  15-C.) 


i 


Service  At  Cost  Agreements 


151 


The  arbitration  of  the  following  matters  is  specifically  pro- 
vided for: 

Disagreement  as  to  whether  service  prescribed  by  the  City  will 
interfere  with  the  rate  of  fare  in  effect,  or  any  higher  rate  pro- 
vided in  the  gi'ant.     (Sec.  6.) 

The  amount  of  the  Operating  Allowance.     (Sec.  11- A.) 

The  amount  charged  as  rental  for  the  Company's  Offices  in  the 
building  of  the  Mahoning  &  Shenango  Railway  &  Light  Co. 
(Sec.  11-C.) 

The  proportion  of  the  salaries  of  Officers  of  the  Mahoning  & 
Shenango  Railway  &  Light  Co.,  to  be  charged  to  the  City  system. 
(Sec.  11-Da.) 

The  allocation  of  damages  as  between  interurban  and  suburban 
lines  and  the  City  System,  when  interurban  and  suburban  cars 
are  operated  over  the  City  tracks.     (Sec.  11-E.) 

The  amount  of  the  Maintenance,  Repair  and  Renewal  Allow- 
ance.    (Sec.  12- A.) 

Charges  to  the  Maintenance,  Repair  and  Renewal  Account. 
(Sec.  12-A.) 

Disputes  as  to  methods  of  fare  collection,  purchase  of  materials 
and  supplies  and  compensation  of  employees.     (Sec.  14- A.) 

Disputes  as  to  what  expenditures  of  the  Company  are  to  be 
charged  as  Betterments,  Extensions  and  Permanent  Improvements. 
(Sec.  15.) 

Claims  by  the  Company  that  Betterments,  Extensions  and 
Improvements  proposed  by  the  City,  will  impair  the  ability  of  the 
Company  to  earn  the  return  stipulated  in  the  Grant,  or  that  it  is 
unable  to  finance  such,  Betterment,  etc.,  at  the  rate  of  return 
allowed  by  the  City.     (Sec.  15-C.) 

Disputes  as  to  rates  of  fare  to  be  charged,  or  salvage  to  be 
allowed  when  Grant  has  less  than  15  years  to  run.     (Sec.  18.) 

Disputes  as  to  the  allocation  of  funds  in  Amortization  Fund,  as 
between  reduction  in  Capital  Value  and  Betterments,  Extensions 
and  Permanent  Improvements,  in  the  event  that  an  extension  of  the 
Grant  shall  be  made  after  the  accumulation  of  an  Amortization 
Fund,  under  the  provisions  of  the  Grant  applying  when  the  Grant 
has  less  than  15  years  to  run.     (Sec.  18.) 


M 


iH 


Mi 


152 


Service  At  Cost  Agreements 


Cincinnati 
See  Cincinnati  C-7-(a). 

Boston 

Ko  Arbitration  Boards  provided  for. 

Massachusetts  (General) 
See  Massachusetts  (General)  C-7-(a). 

ilONTREAL 

The  decision  of  the  Quebec  Public  Utilities  Commission  in  all 
matters  except  that  of  law  is  final.     (Art.  15.) 

The  Quebec  Public  Utilities  Commission  may  confirm,  reverse 
or  modify  the  decision  of  the  Commission  on  appeal,  and  render 
such  decision  as  should,  in  its  opinion,  have  been  rendered  by 
the  Commission.     (Art.  15.) 

When  an  appeal  is  not  authorized  under  the  agreement,  or 
when  an  appeal  is  authorized  but  not  lodged,  if  the  Company  neg- 
lects or  refuses  to  comply  with  the  decision  of  the  Commission, 
the  latter  shall  report  to  the  Quebec  Public  Utilities  Commission, 
which  shall  take  any  measure  it  may  deem  necessary  to  carry  out 
the  order  of  the  Commission,  in  the  same  manner  as  if  the  deci- 
sion had  been  given  by  the  Quebec  Public  Utilities  Commission. 
(Art  20.) 

See  C-7-(b)-2. 

Eastern  Massachusetts 
'No  Arbitration  Boards  provided  for. 

Westerville 

A  majority  of  the  three  arbitrators  has  power  to  decide  the 
question  submitted.  A  decision  must  be  rendered  within  thirty 
days,  unless  there  is  unanimous  agreement  to  an  extension.  The 
decision  of  the  Board  is  binding  upon  both  parties.     (Sec.  18.) 

Specific  provision  is  made  for  the  submission  of  questions  to 
arbitration  as  follows: 

Disagreement  as  to  the  institution,  or  limits  of  the  overlapping 
fare  zones  provided  for  by  the  Grant.     (Sec.  11.) 


i\ 


Service  At  Cost  Agreements 


153 


The  proportion  of  salaries  and  general  expenses  of  the  Com- 
pany to  be  charged  to  the  operation  of  the  Westerville  division, 
covered  by  the  Grant.     (Sec.  13.) 

The  question  as  to  whether  the  Company  is  able  to  finance 
Extensions,  Betterments  and  Permanent  Improvements,  proposed 
by  the  Commission,  or  whether  such  Extensions,  Betterments  and 
Permnnent  Improvements,  will  impair  the  ability  of  the  Company 
to  earn  its  fixed  return.      (Sec.  14.) 


Dallas 

Questions  submitted  shall  be  decided  by  a  majority  of  the 
Board  of  Arbitration.     (Sec.  13.) 

The  Board  shall  have  the  power  to  Rx  dates  for  hearing;  to 
prescribe  rules  for  procedure,  and  to  say  when  and  how  testi- 
mony of  witnesses  shall  be  taken,  except  that  either  party  to  the 
arbitration,  may  upon  notice,  take  evidence  of  witnesses  either 
within  or  without  the  State  by  oral  or  written  interrogatories, 
and  the  procedure  for  such  interrogatories  shall  follow  as-  closely 
as  possible  that  prescribed  by  the  laws  of  Texas.     (Sec.  13.) 

Subject  to  the  limitations  contained  in  the  Grant,  all  questions 
of  everjr  kind,  character  and  description  arising  between  the  City 
and  the  Company  in  carrying  out  the  provisions  of  the  Grant 
**  or  in  the  exercise  by  the  City  or  the  Grantee  of  any  of  its 
authorized  powers  •  and  whether  or  not  expressly  committed  to 
determination  by  arbitration  by  the  provisions  of  this  ordinance 
shall  be  subject  to  arbitration  under  the  provisions  hereof  except, 
however,  matters  relating  directly  to  the  police  powers  of  the  city 
which  shall  not  be  abridged  by  anything  herein  contained." 
(Sec.  14.) 

The  findings  of  a  Board  of  Arbitration,  except  as  to  service 
and  extensions,  which  decisions  are  subject  to  the  provisions  of  the 
ordinance,  shall  be  final  and  binding  on  both  parties.     (Sec.  14.) 

The  finding  invalid  of  any  provision  of  the  Grant,  relative  to 
arbitration,  shall  not  affect  any  other  provision  of  the  Grant  rela- 
tive to  arbitration.     (Sec.  14.) 

If  any  of  the  subjects  designated  for  arbitration  are  found  to 
be   improper   subjects    therefor,    the    Commissioners   retain   the 


II 


■M 


154 


Service  At  Cost  Agreements 


i 


authority  over  such  matters  prescribed  by  the  City  Charter,  and 
the  Company  is  entitled  to  apply  for  review  to  the  Courts.  (Sec. 
14.) 

The  Board  of  Arbitration  shall  have  the  power  in  any  order 
filed  by  it  to  fix  or  change  the  time  any  requirement  thereof  shall 
be  performed.     (Sec.  16.) 

The  following  matters  are  specifically  excluded  from  arbitra- 
tion : 

The  decision  of  the  Board  of  Commissioners  as  to  the  amount 
to  be  added  to  property  value  on  account  of  the  purchase  or  acquisi- 
tion by  the  Company  of  the  property  of  any  other  railway  com- 
pany.    (Sec.  2.) 

Kequirements  of  the  Board  of  Commissioners,  under  the  Grant, 
as  to  grading  and  paving.     (Sec.  6.) 

Refusal  of  the  Board  of  Commissioners  to  allow  proceeds  from 
the  sale  of  property  to  be  applied  to  the  reduction  of  indebtedness. 
(Sec.  20.) 

Refusal  of  the  Board  of  Commissioners  to  allow  the  Company 
to  pay  to  creditors,  monies  received  on  account  of  insurance  cover- 
ing losses.     (Sec.  20.) 

Order  of  the  Board  of  Commissioners  requiring  the  removal  of 
tracks  in  the  so-called  *'  Fair  Park  Terminal."     (Sec.  30.) 

Order  of  the  Board  of  Commissioners  as  to  the  use  of  the  Termi- 
nal by  at  least  four  intenirbans,  within  the  ten  years  next  after 
the  taking  effect  of  the  Grant.     (See.  37.) 

An  order  of  the  Board  of  Commissioners,  requiring  the  Com- 
pany to  return  to  the  method  and  basis  of  selling  tickets  provided 
in  the  Grant,  after  a  change  has  been  made  in  such  basis  and 
method  by  agreement  between  the  Commissioners  and  the  Com- 
pany.    (Sec.  24.) 

Arbitration  is  specifically  provided  for  as-  to  the  following  mat- 
ters : 

The  amount  of  compensation  to  be  paid  the  Company  for  the 
use  of  its  tracks  by  interurban  railways  entering  the  City,  with 
the  permission  of  the  Board  of  Cofnmissioners.  In  this  case,  the 
interurban  is  substituted  for  the  City  as  a  party  to  the  arbitration, 
and  the  award  of  the  Board  of  Arbitration  is  subject  to  review  by 


i 


Service  At  Cost  Agreements 


155 


the  Board  of  Commissioners,  which  may  finally  fix  the  compensa- 
tion to  be  paid.     (Sec.  8.) 

The  jeopardization  of  the  Company's  ability  to  earn,  under 
the  highest  fare  allowable,  the  return  stipulated  in  the  Gram,  by 
requirements  of  the  Board  of  Commissioners  as  to  Service.  The 
provision  for  arbitration  does  not,  however,  bar  the  City's  right 
to  require  service  under  the  provisions  of  the  Dallas  City  charter. 
(Sec.  10.) 

The  jeopardization  of  the  Company's  ability  to  earn,  iinder  the 
highest  fare  allowable,  the  return  stipulated  in  the  Grant,  by 
requirements  of  the  Board  of  Commissioners,  or  Supervisors  as  to 
the  making  of  Extensions,  Betterments  and  Improvements.  (Sec. 
27.) 

The  propriety  of  work  done  in  the  way  of  Extensions,  Better- 
ments and  Improvements,  under  the  Emergency  provisions  of  the 
Grant.     (Sec.  27.) 

The  action  of  the  Board  of  Commissioners  upon  proposals  of 
the  Company  for  increase  of  working  Capital.     (Sec.  28.) 

Disagreement  with  the  Supervisor^  as  to  wastefulness  in 
expenditures  or  methods,  or  the  means  suggested  by  the  Super- 
visor for  the  correction  of  such  methods.     (Sec.  29.) 

Orders  of  the  Commission  requiring  the  change  of  tracks  from 
one  street  to  another.     (Sec.  30.) 

The  question  as  to  whether  the  cost  of  removing  tracks  in  the 
so-called  "  Fair  Park  Terminal "  shall  be  added  to  Capital  Value. 
(Sec.  30.) 

The  question  as  to  whether  the  admission  of  any  new  inter- 
urban, other  than  the  four  whose  admission  is  required  by  the 
terms  of  the  Grant  within  ten  years,  will  overcrowd  the  Terminal, 
and  as  to  whether  the  provision  of  facilities  to  prevent  such  over- 
crowding will  jeopardize  the  ability  of  the  Company  to  earn  the 
return  stipulated  in  the  Grant,  under  the  highest  fare  allowable. 
(Sec.  37.) 

The  allocation  of  the  value  of  property  outside  the  city,  which 
the  City  may  not  have  legal  authority  to  buy,  in  case  of  the  pur- 
chase by  the  City  of  the  property  of  the  Company.     (Sec.  38) 

Orders  of  the  Commission  requiring  the  furnishing  of  addi- 
tional facilities  in  connection  with  the  Terminal.     (Sec.  37.) 


'I. 


i^ii 


156 


Service  At  Cost  Agreements 


Memphis 


No  provisions. 


(c)  Penalties 

Clevelaxd 
In  the  event  of  the  failure  of  the  Company  to  abide  hj  the  deci- 
sion of  a  Board  of  Arbitration,  or  to  carry  out  the  orders  of  such 
Board,  the  return  upon  the  stock  of  the  Company  may  be  reduced, 
but  not  more  than  one  per  cent,  until  such  time  as  the  Company, 
shall  have  in  the  opinion  of  the  Board,  carried  out  its  orders. 
(Sec.  14.) 

YotJNGSTOWN 

Upon  failure  of  the  Company  to  fulfill  the  award  of  a  Board  of 
Arbitration,  the  rate  of  return  allowed  to  the  Company  shall  be 
reduced  in  such  amount  as  the  Board  may  decide,  but  not  to 
exceed  one  per  cent.  In  the  event  of  the  failure  of  the  City  to 
comply  with  the  award  of  the  Board,  such  rate  shall  be  increased 
in  such  amount  as  the  Board  may  decide,  but  not  to  exceed  one 
per  cent.  Such  increase*  or  decrease  shall  continue  in  force  until 
the  Board  shall  have  decided  that  its  award  is  being  complied  with. 
(Sec.  9-E.) 

CiNCINNITI 

Wo  provision  except  as  specified  in  C.  7  (a). 

BosToir 
1^0  arbitration  Board  provided  for. 

Massachusetts  (General) 
No  provisions. 

MONTHEAL 

For  failure  to  conform  to  the  decisions,  or  for  infringement  of 
the  orders  of  the  Commission,  the  Company  is  liable  to  a  fine 
of  $40  a  day,  and,  in  the  discretion  of  the  Recorder's  Court  of 
Montreal  in  which  such  penalty  is  to  be  recovered  in  the  manner 
provided  for,  the  collection  of  other  fines  imposed  by  municipal 
ordinances,  to  the  payment  of  costs,  for  each  and  every  day  during 
which  it  shall  fail  to  conform  or  continue  the  infringement  of 


Service  At  Cost  Acreemexts 


157 


orders.  In  the  case  of  infractions  within  the  City  limits,  suits 
may  be  brought  by  the  City  or  any  officer  thereof,  and  the  fines 
so  collected  become  the  property  of  the  City.  In  the  case  of 
infractions  outside  of  City  limits,  suits  may  be  brought  by  the 
municipalities  affected,  or  by  their  officers,  before  any  court  of 
competent  jurisdiction  and  the  fines  so  collected  become  the 
property  of  the  municipality  (Art.  96).  Fines  levied  against  the 
Company  are  paid  from  the  guarantee  fund  (see  H-2)  (Art.  92). 

If  the  provisions  of  the  contract  are  infringed,  by  any  person 
other  than  the  Company,  such  person  shall  be  liable  to  a  fine 
of  $40,  or  in  the  event  that  the  fine  is  not  paid  to  imprisonment, 
until  it  be  paid,  but  for  not  more  than  30  days.  If  the  offense  be 
committed  within  the  City  limits,  the  fine  becomes  the  property 
of  the  City ;  if  committed  outside  the  City  limits,  it  becomes  the 
property  of  the  mimicipality  in  which  the  offense  is  committed. 
The  method  of  its  collection  is  the  same  as  in  the  case  of  an  offense 
hj  the  Company.     (Art.  97.) 

'No  action  for  the  recovery  of  a  fine  against  a  person  other 
that  the  Company  may  be  brought  after  the  expiration  of  six 
months  after  the  date  of  the  offense.     (Art.  97.) 

Eastern  Massachusetts 
ISTo  Arbitration  Board  provided  for. 

Westervillb 
"Ko  penalties  provided. 

Dallas 
Upon  the  failure  of  the  Company  to  comply  with  the  terms  of 
any  award  made  by  a  Board  of  Arbitration,  such  Board  may, 
as  a  penalty,  reduce  the  rate  of  return,  which  the  Company  is 
under  the  terms  of  the  Grant  entitled  to  earn  upon  its  Property 
Value,  in  any  amount,  not  exceeding  1  per  cent,  per  annum  of 
the  Property  Value,  and  such  diminution  in  the  rate  of  return 
shall  continue,  until  the  award  has  been  complied  with,  or  until 
modified  or  vacated  by  the  Board.  Whatever  the  number  of 
co-existent  defaults  may  be,  the  penalty  shall  not  exceed  the 
limit  prescribed.  For  the  purpose  of  seeing  that  its  awards  are 
complied  with,  or  to  modify,  or  vacate  its  orders,  the  jurisdiction 
11 


I 


158 


Seevice  At  Cost  Agreements 


Seevice  At  Cost  Agreements 


159 


of  the  Board  of  Arbitration  shaU  continue,  until  all  matters 
arising  from  its  award  shall  have  been  disposed  of.  In  the  case 
of  a  vacancy,  it  shall  be  filled  in  the  manner  provided  for  consti- 
tuting an  original  Board.     (Sec.  11.) 


^0  pr' 


Memphis 


ovisions. 


(d)  Expenses  of  Arbitration 

Cleveland 
Paid  as  part  of  cost  of  semce. 

YOUNGSTOWN 

The  expenses  of  arbitration  shall  be  fixed  by  the  Board  and 

«i  Z  /"  ^P"™*'°S  ^'^''  ^^«^Pt  that  any  expenses  in  excess  of 
?1,000  for  any  six  months'  period  shall  be  paid  from  the  Stabil- 
izing Fund.     (Sec.  9-B.) 

Cincinnati 
The  expenses  of  each  arbitration  shall  be  fixed  by  the  arbitrators 
m  their  decision  and  shall  be  included  as  an  item  in  the  Budget 
or  Supplementaiy  Estimate  and  be  paid  by  the  operating  com- 
pany  from  the  gross  receipts.     (Sec.  8.) 

Boston- 
Xo  Arbitration  Board  provided  for. 

Massachusetts  (General) 
Xo  provisions. 

Montreal 
^  Xo  provision  is  made  for  the  expenses  of  arbitration,  such  pro- 
vision being  unnecessaiy  because  no  special  arbitration  boards  are 
provided  for. 

Eastern  Massachusetts 
^0  Arbitration  Board  provided  for. 

Westerville 
Expenses  of  arbitration  shall  be  fixed  by  the  Arbitration  Board 
and  charged  as  an  operating  expense.     (Sec.  18.) 


Dallas 

All  expenses  of  arbitration  including  the  fees  of  Arbitrators, 
which  shall  be  fixed  by  the  Board  of  Commissioners,  shall  be 
presented  by  the  Arbitrators  in  their  award  and  paid  (except  as 
to  expenses  of  arbitrations  involving  Extensions,  Betterments  and 
Improvements  to  be  paid  as  a  cost  of  the  same)  from  Operating 
Expenses.     (Sees.  13  and  27.) 


No  provisions. 


1.— INITIAL  VALUE 


Memphis 


D.    RETURN 


Clevelat^d 

The  initial  capital  value  was  fixed  by  agreement.  (Forty-five 
per  cent  of  the  par  value  of  the  outstanding  stock  was  wiped  out 
by  the  settlement.)     It  consisted  of 

(a)  The  bonded  indebtedness  of  the  company. 

(b)  The  floating  indebtedness  of  the  company  and  certain 
specified  obligations  of  underlying  companies,  and  the  sum  of 
$500,000,  contributed  to  the  Interest  Fund. 

(c)  Such  remaining  amount  as  brought  the  total  to  the  agreed- 
upon  initial  value.     (Sec.  16.) 

YOUNGSTOWN 

The  Initial  Capital  Value  was  fixed  by  agreement.  In  general 
the  property  included  is  that  used  for  the  operation  of  the  City 
System,  including  the  Company's  Haselton  Shops,  located  in  East 
Youngstown.  The  Company's  City  Power  is  included,  as  well 
as  the  steam  heating  plant,  and  the  direct  current  distribution 
lines.  Arrangement  for  interchange  of  current  between  the  Com- 
pany's Youngstown  power  house  and  its  power  houses  outside  the 
city,  as  well  as  for  the  furnishing  of  steam  for  the  steam  heating 
lines,  is  provided  for  as  previously  explained. 

The  value  of  this  property  is  placed  at  $3,900,000.    (Sec.  10.) 
In  addition  the  following  amounts  were  added  to  Initial  Cap- 
ital Value: 


M 


160 


Service  At  Cost  Agreements 


1 


The  value  of  the  stores,  an  inventor)^  of  which  having  Ijcen  fur- 
nished by  the  Company,  the  Commissioner  decided  were  neces- 
sary to  the  administration  of  the  property;  the  sum  of  $100,000 
set  up  as  a  Stabilizing  Fund ;  the  sum  of  $50,000  to  be  used  in  pay- 
ment of  claims  and  judgments  arising  before  the  taking  effect  of 
the  Grant,  and  the  sum  of  $50,000  to  be  used  in  payment  of 
increased  wages,  from  September  1,  1918,  until  the  ordinance 
became  effective.     (Sec.  10.) 

wI^wiT'^^®  total  valuation  of  the  property  as  allowed  hv  the  citv  and  on 
h^ng5sirmn^^  '^       ^^*  *  ''^'*^*"  '''^"'■"  *'  $4,370,480.37,  the  car  mileage 

Cincixxati 
No  specific  value  for  purposes  of  allowing  return  is  placed  upon 
the  property  by  the  terms  of  the  Grant.  Certain  rentals,  and  other 
returns  are  allowed,  which  amount  to  approximately  six  per  cent 
on  a  value  of  $30,000,000,  which  is  practically  the  amount  of  a 
tentative  valuation  made  in  1916,  plus  the  capital  put  into  the 
property  after  that  data 

Boston 
1^0  initial  value  is  fixed.  The  act  provides  for  the  payment  of 
rentals,  interest  on  all  indebtedness,  fixed  dividends  on  preferred 
stock,  and  dividends  on  common  stock  at  stipulated  rates.  The 
capitalization  of  the  Company  at  the  time  of  the  taking  effect  of 
the  act  was  thus  recognized.     (Sec.  6.) 

Massachusetts  (General) 
The  Initial  Value  of  the  property  upon  which  return  is  to  be 
allowed  is  fixed  by  the  Public  Service  Commission  in  accordance 
with  the  provisions  of  the  Act.  "  Capital  Investment ''  is  defined 
as  "  the  amount  of  cash  or  fair  value  of  the  property  paid  in  for 
stocks,  bonds  and  other  evidences  of  funded  indebtedness  and  prop- 
erly expended  for  capital  purposes,"  as  determined  by  the  Com- 
mission. It  is,  however,  provided  "  that  if  the  Commission  has 
heretofore  approved  the  issue  of  any  such  securities,  no  further 
determination  in  regard  to  the  '  Capital  Investment '  represented 
by  such  securities  shall  be  necessary.*'    (Sec.  2.) 


Service  xIt  Cost  Agreements 


161 


In  addition,  before  the  Company  can  secure  the  benefits  of  the 
Act,  its  unfunded  debt  must  be  passed  upon  by  the  Commission. 
Interest  upon  that  portion  of  the  unfunded  debt,  allowed  by  the 
Commission,  is  to  be  considered  as  a  part  of  the  cost  of  service. 
Interest  upon  that  portion  disallowed  by  the  Commission  must  be 
paid  from  the  return  allowed  upon  the  "  Stock  Investment." 
(Sec.  4.) 

Montreal 
The  initial  value  of  the  property  is  fixed  at  $36,286,295,  as 
of  June  30,  1917;  being  the  sum  found  by  a  valuation  made  by 
L.  A.  Herdt,  D.  W.  Ogilvie  and  A.  H.  Lapierre.     (Art.  1,  d,  e.) 

m 

Eastern  Massachusetts 
The  Act  authorizes  the  organization  of  a  new  Company  to  take 
over  the  property  of  the  Bay  State  Street  Railway  Co.  (The 
New  Company  is  called  the  Eastern  Massachusetts  Streets  Rail- 
way Co.)  For  the  purpose  of  this  purchase,  the  New  Company 
is  authorized  to  issue  stocks,  bonds  and  other  evidences  of  indebted- 
ness in  such  amount  as  will  represent  a  capital,  bearing  an  annual 
interest  and  dividend  charge  (dividends  on  common  stock  being 
computed  at  six  per  cent),  not  in  excess  of  six  per  cent  or  $42,- 
282,340  (which  is  the  investment  value  placed  upon  the  property 
by  the  Public  Service  Commission,  as  of  August  1,  1916),  and, 
in  addition,  such  further  amounts  as  the  Public  Service  Commis- 
sion determines,  were  added  to  the  property  in  the  way  of  better- 
ments and  improvements  between  August  1,  1916,  and  the  date 
of  purchase,  except  that  additions  and  improvements  paid  for 
from  the  proceeds  of  Receiver's  certificates,  provisions  for  the 
retirement  of  which  are  made  by  the  Act,  shall  not  be  so  included, 
while  the  value  of  property  sold  or  disposed  of  by  the  Receiver 
before  the  organization  shall  be  deducted.  The  Public  Service 
Commission  is  further  directed  to  adjust  Initial  Capital  Value, 
so  that  rentals  paid  by  the  Company,  for  the  lease  of  lines  not 
owned  by  it,  shall  represent  the  present  value  of  such  properties 
on  a  six  per  cent  basis.     (Sec.  4.) 


tr 


162 


Service  At  Cost  Agreemexts 


Westerville 
The  value  of  the  property  coming  under  the  terms  of  the  Grant 
is  fixed  by  agreement  and  the  Grant  at  $350,000.  This  is  exclu- 
sive of  Minerva  Park,  and  embraces  but  15  per  cent  of  the  value 
€f  roadbed,  track  and  overhead  distribution  system  and  equip- 
ment between  17th  Avenue  in  the  City  of  Columbus  and  the  ]^orth 
Corporation  line  of  the  Village  of  Linden  Heights  as  it  was  con- 
stituted at  the  time  of  the  passage  of  the  Grant.  For  the  first  ten 
years  of  the  Grant,  the  Company  waives  right  to  earn  interest  on 
$75,000  of  this  $350,000  Initial  Value.    (Sec.  12.) 

Dallas 

The  Initial  Property  Value  fixed  for  the  purpose  of  determin- 
ing fares  and  purchase  price,  was  by  the  terms  of  the  Grant  placed 
at  $4,100,000,  exclusive  of  the  value  of  the  property  leased  from 
the  I!^orthem  Texas  Traction  Company  and  the  property  to  be 
acquired  from  the  Dallas  Interurban  Terminal  Association. 
(Sec.  18.) 

Memphis 
The  order  of  the  State  Railroad  and  Public  Utilities  Commis- 
sion, fixes  the  initial  "  investment ''  as  of  July  1,  1919,  upon 
which  a  retui-n  is  to  be  allowed  at  $11,846,034.  Engineers  em- 
ployed by  the  Commission,  the  City  and  the  Company  airreed 
upon  $9,305,042  as  the  value  of  the  physical  property,  overhead, 
working  capital  and  cost  of  financing.  There  was  disagreement  as 
to  the  cost  of  development,  and  the  vnlue  to  }>e  al]<)we<l  for  super- 
ceded property.  The  final  figure  represents  the  judgment  of  the 
Commission  after  a  consideration  of  the  reports  of  the  engineers 
representing  the  three  difierent  interests. 

2.— ADDED  VALUE 

Cleveland 

Additions  to  capital  value,  consist  of  the  par  value  of  bonds  and 
stocks,  issued  and  sold  with  the  approval  of  the  City,  for  exten- 
sions, betterments  and  permanent  improvements.     (Sec.  17.) 

YOUNGSTOWN^ 

The  par  value  of  stocks  and  bonds  sold,  or  debts  created,  with 
the  approval  of  the  City,  for  new  lines,  tracks,  cars,  buildings, 


Service  At  Cost  Agreemexts 


163 


r 


lands  or  construction  of  any  kind,  Extensions,  Betterments  and 
Permanent  Improvements  shall  be  added  to  Capital  Value.  (Sec. 
10-B.) 

If  bonds  or  stock  are  sold  at  a  premium,  such  premium  shall 
not  be  added  to  Capital  Value.     (Sec.  10-B.) 

The  expense  incident  to  the  floating  of  new  capital  shall  be 
added  to  Operating  Cost.     (Sec.  10-B.) 

The  cost  of  paving,  necessitated  by  the  extension  of  the  system. 
(Sec.  5.) 

Seventy-five  per  cent  of  the  cost  of  rebuilding  certain  new  cars 
as  provided  by  the  Grant.     (Sec.  15-A.) 

Cincinnati 

No  provision  is  made  for  added  value,  other  than  the  provisions 
covering  the  amount  of  return  to  be  allowed  upon  securities  issued 
hj  the  Company,  with  the  approval  of  the  City,  after  the  date 
when  the  Grant  became  effective. 

Boston 

No  provision  is  made  for  added  value.  The  Trustees  h?ve  the 
power  to  issue  stocks,  lx)nds  and  other  evidences  of  indebtedness 
and  may  fix  the  rate  of  return  thereon,  excepting  that  the  return 
on  common  stock  is  limited  by  the  provisions  of  section  6.  (See 
D.  4,  Return  on  Common  Stock.)     (Sec.  3.) 

ILissACHFSETTS  (General) 

There  is  no  direct  provision  covering  added  value.  Under 
existing  laws,  the  Commission  has  complete  control  over  the 
issuance  of  securities  by  electric  railways,  and  it  is  to  be  pre- 
sumed that  added  value  will  consist  of  the  amount  of  such  securi- 
ties as  are  issued  with  the  approval  of  the  Commission. 

In  addition,  the  Commission  is  directed  to  pass  upon  the  un- 
founded debt  of  the  Company,  and  interest  as  a  part  of  the  cost 
of  service  is  allowed  only  upon  that  portion,  which  has  the 
approval  of  the  Commission.     (Sec.  4.) 

Montreal 

There  shall  be  added  to  initial  value  (knowTi  as  Capital  Value), 
from  time  to  time,  such  money,  except  that  payable  from  thij 


II 


^  t 


l» 


164 


Service  At  Cost  Agreements 


Maintenance  and  Renewals  Fund,  as  shall  be  supplied  by  the 
company,  and  expended  under  the  supervision  of  the  Conmiis- 
sion,  for  bettenncnts,  additions  and  extensions  of  plant,  required 
by  the  contract,  or  approved  by  the  Commission,  together  with  net 
interest  during  construction.     (Art.  92;  Par.  3.) 

The  amount,  as  ascertained  by  the  Commission,  expended  by 
the  Company  for  physical  assets  added  to  its  system  between. 
December  31,  1917,  and  the  date  that  the  contract  became  eifec- 
tive.     (Art.  02;  Par.  8.) 

Such  working  capital  as  is  required  by  the  Coimnission  and 
furnished  by  the  Company.     (Art.  92;  Par.  3.) 

Money  furnished  by  the  Company,  to  make  up  the  difference 
between  the  actual  cost  and  the  reproduction  cost  of  any  unit  or 
article  replaced,  or  for  which  a  substitute  is  provided.  (Art.  92 ; 
Par.  2.) 

Eastern  Massachusetts 

The  Xew  Company  is  authorized  to  issue  $5,000,000  of  serial 
bonds,  secured  by  a  mortgage  of  the  entire  property,  subject  only 
to  certain  mortgages  securing  the  bonds  of  companies  purchased 
by,  or  consolidated  with  the  Bay  State  Street  Railway  Company. 
Such  mortgage  may  further  cover  property  to  be  acquired  by  the 
Company,  with  the  exception  that  additional  property  may  be 
acquired  subject  first  to  purchase  money  mortgages,  conditional 
sale  agreements  and  equipment  trusts.  The  annual  installments 
of  such  serial  bonds,  shall  constitute  a  lien  upon  any  surplus  of 
the  ]N"ew  Company,  applicable  to  dividends.     (Sec.  5.) 

To  the  extent  that  revenue  applicable  to  dividends  is  used  in 
payment  of  installments  on  the  serial  bonds,  or  other  evidences  of 
indebtedness,  it  shall  be  capitalized,  stock  at  par  to  be  issued  to 
the  stockholders  to  take  the  place  of  bonds  and  other  evidences  of 
indebtedness,  to  the  extent  that  revenues  applicable  to  dividends 
were  used  in  retiring  such  securities.     (Sec.  6.) 

The  expenses  of  the  organization  of  the  'New  Company  and  of 
transferring  the  property  of  the  old  company  to  the  new  shall  be 
capitalized  to  the  extent  approved  %  the  Trustees  and  the  Pub- 
lie  Service  Commission,  providing  that  such  expenses  shall  be 
amortized  within  fifteen  years  from  the  date  when  thev  were 
incurred.     (Sec.  6.) 


Service  At  Cost  Agreements 


165 


I 


The  Trustees  are  further  authorized,  with  the  approval  of  the 
Public  Service  Commission,  to  issue  such  bonds,  stocks  and  other 
evidences  of  indebtedness,  as  may  be  necessary  to  provide  for 
extensions,  improvements  and  betterments  (See.  13),  and  upon 
the  securities  thus  issued  are  directed  to  pay  a  return.     (Sec.  14.) 

Westerville 

The  sum  of  $25,000  to  be  used  as  Working  Capital  is  added  to 
Initial  Value.     (Sees.  12  and  13.) 

Sums  invested  for  Extensions,  Betterments  and  Permanent 
Improvements,  "  including  highway  improvements,  equipment 
and  other  investments  properly  chargeable  to  Capital  Account." 
(Sec.  12.) 

Dallas 

Under  the  Grant,  the  Company  was  to  lease  certain  property 
of  the  Northern  Texas  Traction  Co.  and  to  purchase  the  property 
of  the  Dallas  Interurban  Terminal  Association.  Accordingly, 
provision  was  made  for  the  addition  to  Property  Value  of  the 
following  items: 

Item  1: 

(a)  One  Hundred  Thousand  dollars  of  working  capital  pro- 
vided by  the  Company ; 

(b)  Sums  expended  in  organizing  the  new  Company,  as  deter- 
mined bv  the  Board  of  Commissioners  and  exclusive  of  the  cost 
of  acquiring  the  money; 

(c)  Sums  expended  on  account  of  Extensions,  Betterments  and 
Improvements,  subsequent  to  September  30,  1915.  (The  date  of 
the  original  valuation) ; 

(d)  The  cost  of  Extensions  (as  distinguished  from  Better- 
ments and  Improvements)  made  to  the  property  of  the  Northern 
Texas  Traction  Co.; 

(e)  Additions  to  Working  Capital  authorized  by  the  Board  of 
Commissioners.     (Sec.  18.) 

Item  2 : 

(a)  $1,301,516,  being  the  value  as  of  September  30,  1916  of 
the  Terminal  of  the  Dallas  Interurban  Terminal  Association  to 


II' 


•H 


166 


Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


167 


the  extent  that  the  property  had  been  paid  for  on  that  date  by  the 
Terminal  Association ; 

(b)  Payments  made  on  account  of  construction  by  the  Dallas 
Terminal  Assoination,  subsequent  to  September  30,  1016; 

(c)  Payments  on  account  of  Extensions,  Betterments  and  Im- 
provements to  the  terminal.     (Sec.  18.) 

Item  3 : 

(a)  $1,665,607.14,  being  the  value  of  the  property  leased  from 
the  Xoi-thern  Texas  Traction,  as  of  September  30,  1015.     (Sec. 

18.) 

Item  4: 

(a)  The  cost  of  completing  the  viaduct  over  the  Trinity  river 
and  bottomlands,  the  completion  of  which  is  provided  for  in  the 
lease  between  the  Company  and  the  Northern  Texas  Traction  Co. 
(Sec.  18.) 

Item  5 : 

(a)  All  sums  expended  by  the  Northern  Texas  Traction  Co., 
subsequent  to  September  30,  1915,  for  the  Betterment  and 
Improvement  (as  distinguished  from  Extensions)  of  property 
leased  to  the  Company ; 

(b)  All  sums  exi>ended  by  the  Northern  Texas  Traction  Co., 
for  the  construction  of  the  Trinity  River  viaduct,  on  or  before 
September  30,  1916; 

(c)  All  sums  exj^ended  by  the  Company  for  Betterments  and 
Improvements  (as  distinguished  from  Extensions)  to  the  prop- 
erty leased  from  the  Northern  Texas  Traction  Co.     (Sec.  18.) 

Item  6: 

(a)  The  difference  between  the  cost  of  obsolete  or  worn  out 
property  (cost  to  l>e  reckoned  as  cost  new  at  the  time  of  replace- 
ment) and  the  cost  of  the  property  with  which  it  is  replaced, 
should  such  cost  be  in  excess.     (iSec.  26.) 

(b)  In  the  case  of  obsolete  ^nd  worn  out  property,  acquired 
previous  to  September  30,  1915,  and  replaced  within  two  and  one- 
half  years  from  the  date  when  Grant  took  effect,  the  difference 
between  the  value  of  such  property  as  of  September  30,  1915  and 
the  cost  of  the  property  w^th  which  it  was  replaced.     (Sec.  26.) 


(c)  The  total  amount  of  expenditures  made  under  the  pro- 
visions of  the  Grant  requiring  the  Company  to  expend  $1,000,000 
in  Extensions,  Betterments  and  Improvements  within  18  months 
after  the  taking  effect  of  the  Grant.     (Sec.  28.) 

(d)  The  cost  of  moving  tracks  from  one  street  to  another,  when 
ordered  by  the  Board  of  Commissioners,  and  if  the  Board  of 
Commissioners  agree,  or  a  Board  of  Arbitration  shall  order  it. 
(Sec.  30.) 

(e)  The  cost  of  removing  tracks  from  "  Fair  Park  Terminal." 
(Sec.  30.) 

(f )  Any  items  of  Property  Value  covering  the  property  of  the 
Northern  Texas  Traction  Co.,  which  may  have  been  deducted 
from  Property  Value,  because  of  the  termination  of  the  lease,  shall 
be  restored  in  the  event  that  the  lease  is  renewed.     ('Sec.  36.) 

Memphis 

The  amounts  to  be  added  to  Initial  Value  from  time  to  time  in 
order  to  ascertain  the  ]>asis  of  return,  is  determined  in  accordance 
with  accounting  methods  to  l)e  prescri])ed  by  the  Commission. 
For  the  present  the  I.  C.  C.  Classification  of  Accounts  is  in  use. 

8.— DEDUCTIONS  FROM  VALUE 

Cleveland 

From  the  Capital  Value  shall  be  deducted  all  the  proceeds  re- 
ceived from  the  sale  of  property  included  in  capital  value,  except 
tuch  portion  as  is  used  in  the  making  of  extensions,  betterments, 
or  permanent  improvements,  or  deposited  with  trustees  to  secure 
mortgages.     (Sec.  17.) 

YoUNGSTOWIJf 

Proceeds  from  the  sale  of  property  included  in  Capital  Value, 
unless  used  for  Extensions,  Betterments  and  Permanent  Im- 
provements, shall  be  deducted  from  Capital  Value.     (Sec.  10-D.) 

If  any  property  included  in  Capital  Value  be  sold  for  or  super- 
seded by  pro])erty  of  less  cost,  the  difference  shall  be  paid  from 
the  Maintenance,  Repair  and  Renewal  Account  over  such  a  period 
as  may  be  agreed  upon  by  the  City  and  the  Company,  the  amount 
to  be  amortized  before  the  date  for  the  expiration  of  the  Grant. 


i^i 


I! 


\  . 


Service  At  Cost  Agreements 


1' 


lidi 


If  the  amount  so  received  shall  be  used  for  any  other  purpose  than 
Extensions,  Betterments  and  Permanent  Improvements,  it  shall 
be  deducted  from  Capital  Value.     (Sec.  10-D.) 

There   shall   be  no  revaluation   of  the   Company's  property. 
(Sec.  10-E.) 

CmcmNATi 
Xo  provisions  are  made  for  deductions  from  value.     Through 
the  operation  of  certain  sinking  funds,  values  upon  which  return 
is   allowed   automatically  decrease. 


Ko  provisions. 


BosToiq- 


Massachusetts  (General) 
"  The  Commission  may  order  any  Company  accepting  this 
Act  to  dispose  of  any  property  no  longer  of  service  to  the  Com- 
pany. Any  loss  thereby  incurred  may  be  distributed  over  a 
period  not  exceeding  ten  years,  as  provided  for  in  Section  four, 
Part  IT,  of  Chapter  three  hundred  and  seventy-  three  of  the  Spec- 
ial Acts  of  A^'ineteen  Hundred  and  Seventeen."     (Sec.  13.) 

Montreal 

Proceeds  from  the  sale  of  abandoned  or  obsolete  property  except 
real  estate,  sold,  listed  in  the  schedule  upon  which  initial  value 
is  based,  if  not  paid  into  the  Maintenance  and  Renewals  Fund, 
with  the  consent  of  the  Trustees  for  the  bondholders  of  the  Com- 
pany, shall  be  deducted  from  Capital  Value.     (Art.  92;  Par.  2.) 

The  proceeds  from  land  and  buildings  sold  shall  be  deducted 
from  Capital  Value.     (Art.  92;  Par.  2.) 

The  Company  is  required  within  five  years  from  the  coming 
into  effect  of  the  Agreement  to  sell  certain  specified  real  estate 
covered  in  the  schedule  upon  which  Initial  Value  was  based,  and 
the  selling  price  is  to  be  deducted  from  Capital  Value.  If,  within 
the  five  years,  this  is  not  done,  the  value  of  such  real  estate  as 
shown  in  the  schedule  shall  be  deducted  from  Capital  Value. 
(Art.  90.) 

Eastern  Massachusetts 
¥o  provisions  other  than  as  stated  under  added  value.    The  rule 
laid  down  by  the  Massachusetts  Public  Service  Commission,  is 


Service  At  Cost  Agreements 


1G9 


that  investment  shall  fix  the  value  of  electric  railway  pro^^erties 
and  this  investment  is  represented  by  the  outstanding  securities. 
As  these  securities  are  retired,  the  value  decreases. 

Westerville 

The  fair  value  of  all  proj^erty  withdrawn  from  the  public  use. 
(Sec.  12.) 

Dallas 
A  sum  equal  to  the  proceeds  of  property  sold,  if  applied,  with 
the  consent  of  the  Board  of  Commissioners,  to  the  reduction  of  the 
Company's  indebtedness,  shall  be  deducted  from  Property  Value. 
If  the  price  received  for  property  so  sold  shall  be  less  than  its 
actual  cost,  the  difference  shall  be  made  good  out  of  the  Repair, 
Maintenance  and  Depreciation  Reserve,  or  the  Surplus  Reserve, 
and  if  not  so  made  good  shall  be  deducted  from  Property  Value 
(Sec.  20.) 

In  the  case  of  property  acquired  prior  to  September  30,  1915 
(date  of  original  valuation),  and  sold  within  two  and  one-half 
years  of  the  date  when  Grant  became  effective,  any  deficit  as  l)e- 
tween  the  value  of  such  property  on  September  30,  1915,  and  the 
price  received  upon  sale,  shall  be  made  good  out  of  the  Repair, 
Maintenance  and  Depreciation  Reserve,  or  the  Surplus  Reserve, 
and  if  not  so  made  good  shall  be  deducted  from  Property  Value 
(Sec.  20.) 

If  in  the  case  of  the  sale,  by  permission  of  the  Board  of  Com- 
missioners, of  any  or  all  of  the  property  embraced  in  the  Terminal, 
the  proceeds  shall  be  used  to  pay  the  indebtedness  of  the  Com- 
pany, a  sum  equal  to  such  proceeds  shall  be  deducted  from  Prop- 
erty Value ;  in  case  the  whole  of  the  property  is  sold  any  deficit 
as  between  the  value  of  the  Terminal  as  set  forth  in  the  Grant, 
or,  in  case  of  the  sale  of  part  of  the  Terminal  property,  any  deficit 
as  between  its  cost  and  the  sale  price,  shall  be  made  good  out  of 
Repair,  Maintenance  and  Depreciation  Reserve,  or  Surplus  Re- 
serve, and  if  not  so  made  good  shall  be  deducted  from  Property 
Value.     (Sec.  20.) 

If  property  mortgaged  in  any  other  way  than  under  a  general 
mortgage,  or  acquired  subject  to  a  mortgage,  is  sold  under  fore- 
closure, or  at  a  judicial  sale,  any  deficit  as  between  the  amount  at 


•Jl 


ii 


II 


Jl^ 


170 


Service  At  Cost  Agreements 


which  such  property  is  included  in  Proi)ei-ty  Value,  and  the  sum 
received  at  such  sale  shall  be  deducted  from  Property  Value,  and 
the  proceeds  of  such  sale  shall  be  used  for  Extensions,  Better- 
ments, or  Improvements.     (Sec.  20.) 

In  the  case  of  the  destruction  of  or  loss  to  pro|)erty  insured, 
amounts  received  on  account  of  such  insurance  may,  with  the  con- 
sent of  the  Board  of  Commissioners,  be  use«l  to  pay  oli"  the  indeb- 
tedness of  the  Company,  and  in  such  case  shall  be  deducted  from 
Property  Value.  Losses  sustained  through  the  destruction  of 
projjerty,  whether  or  not  insured,  shall  be  made  good  from  the 
Repair,  Maintenance  and  Depreciation  Resei-ve,  or  the  Surplus 
Reser\^e,  and  if  such  Reserves  are  insufficient  to  make  good  such 
losses  they  shall  be  held  in  suspense  until  they  can  be  amortized 
out  of  Gross  Earnings,     (Sec.  20.) 

In  the  event  that  the  lease  of  the  property  of  the  Xorthern 
Texas  Traction  Company  shall  be  terminated,  the  value  of  all 
property  includc^d  in  Property  Value,  on  account  thereof,  shall  be 
deducted  from  Property  Value.     (iSec.  36.) 

In  the  event  of  the  purchase  of  the  Property  of  the  Company 
by  the  City,  there  shall  be  deducted  from  Property  Value,  the 
value  of  such  property  lying  outside  the  City  limits,  as  the  City 
may  not  have  the  legal  right  to  purchase.     (Sec.  38.) 

In  the  case  of  purchase  by  either  the  City  or  Licensee  of  the 
property  of  the  Company,  and  in  the  event  that  the  Company  shall 
not  have  acquired  the  property  of  the  Northern  Texas  Traction 
Co.,  leased  by  the  Company,  the  value  of  such  leased  property 
included  in  Property  Value,  shall  be  deducted  from  Property 
Value.     (Sees.  38  and  39.) 

Property  included  in  the  value  of  the  property  leased  from  the 
Northern  Texas  Traction  Co.,  as  fixed  by  the  Grant,  sold  and  not 
replaced  by  property  of  equal  value  shall  be  deducted  from  Prop- 
erty Value.    (Sec.  46.) 

Mempjiis 
The  amounts  to  be  deducted  .from  Initial  Value  from  time  to 
time  in  order  to  ascertain  the  basis  of  return,  is  determined  in 
accordance  with  accounting  methods  to  be  prescribed  by  the  Com- 
mission. For  the  present  the  I.  C.  C.  Classification  of  Accounts  is 
in  use. 


Service  At  Cost  Agreements 


171 


4.— RATE  OF  RETURN,  NORMAL 


Cleveland 
Upon  the  bonded  indebtedness  of  the  Company  (see  (a)  supra) ^ 
^ve  per  cent.  When  such  bonded  indebtedness  is  refunded  such 
interest  as  the  new  bonds  may  bear,  plus  such  rate  as  will  amor- 
tize the  discount,  if  the  bonds  be  sold  at  a  discount,  the  total 
not  to  exceed  six  per  cent.     (Sec.  16.) 

Upon  the  other  indebtedness  of  the  Company  (see  (b)  supra), 
six  per  cent. 

Upon  the  capital  stock  of  the  Company  six  per  cent.     (Sec.  16.) 

Note:     As  the  result  of  the  decision  of  a  Board  of  Arbitration  this  rate 
\»a8  in  1920,  increased  to  seven  per  cent. 

It  is  further  provided  that  there  shall  be  paid  from  the  Interest 
Fund,  all  taxes  assessed,  by  the  United  States,  the  State  of  Ohio, 
or  any  County,  Municipal  or  Township  authorities  in  that  State, 
against  such  stock,  so  that  the  six  per  cent  shall  be  tax  free 
(Sec.  17.) 

Youngstown 

Upon  Initial  Value,  seven  per  cent  per  annum,  paid  in  twelve 
monthly  instalments. 

Upon  added  Capital  Value,  the  rate  of  return  fixed  in  the 
resolution  authorizing  the  issuance  of  stocks,  and  bonds  or  the 
creation  of  floating  debt,  which  shall  in  all  cases  be  the  lowest 
rate  at  which  the  capital  can  be  secured.     (Sec.  10-E.) 

Cincinnati 
Xo  rate  of  return  is  specified.     The  Company  is  allowed  cer- 
tain sums  fixed  in  the  Grant,  covering  rentals,  interest  and  prin- 
cipal upon  equipment  notes  and  return  upon  moneys  invested  in 
the  property.     (See  E.  1.) 

Boston 
On  Rented  Property  —  rents  stipulated  in  lease.     (Sec.  6.) 
On  Indebtedness— interest  fixed  by  securities  or  other  evi- 
dences of  indebtedness.     (Sec.  6.) 

On  preferred  stock  — fixed  dividends.     (Sec»  6.) 
On  special  issue  of  preferred  stock,  authorized  by  act  to  pro- 
vide $2,000,000  for  betterments  and  improvements  and  $1,000,000 
to  provide  a  Reserve  Fund  —  fixed  dividends  not  to  exceed  seven 
per  cent.     (Sec.  6.) 


172 


Service  At  Cost  Agreemei^ts 


^ 


On  Common  Stock  —  five  per  cent,  for  the  first  two  years  of 
the  ten-year  period  of  public  management  and  control;  five  and 
one-half  per  cent,  for  the  next  two  years,  and  six  per  cent  there- 
after.    (Sec.  6.) 

Massachusetts  (General) 
On  Kented  Property  —  rents  as  fixed  in  the  lease.     (Sec.  2.) 
On  Indebtedness  —  interest  fixed  in  securities  or  other  evi- 
dences of  indebtedness.     (Sec.  2.) 

On  Preferred  Stock  —  dividends  fixed  at  the  time  of  issuance. 
(Sec  2.) 

On  Stock  Investment  (defined  as  the  difference  between  the 
sum  of  the  "Capital  Investment"  (see  D-1)  and  the  amount 
paid  in  for  outstanding  preferred  stock,  bonds  and  other  evidences 
of  funded  indebtedness)  —  On  Stock  Investment  included  in 
original  value,  six  per  cent;  on  stock  investment  hereafter  issued 
with  the  Commission's  approval,  six  per  cent.     (Sec.  2.) 

MoNTBEAJL 

On  Initial  Value  —  six  per  cent.     (Art.  92;  Par.  3.) 

On  Added  Value — six  per  cent  (on  money  borrowed  by  the 
Company  from  Maintenance  and  Eenewals  Fund,  from  Contin- 
gent Reserve  Fund  and  from  Tolls  (Reduction  Fund,  the  Company 
is  required  to  pay  six  per  cent  interest  into  such  funds). 

On  new  capital  supplied  during  the  war  and  for  two  years 
thereafter  (the  additional  return  to  be  paid  for  a  period  of  five 
years  after  the  close  of  the  war,  only)  —  six  per  cent,  plus  an 
additional  one  per  cent.     (Art.  92;  Par.  3.) 

On  working  capital  supplied  by  the  Company  under  the  direc- 
tion of  the  Commission  —  six  per  cent.     (Art.  92;  Par.  3.) 

Easteiin  Massachusetts 
On  Bonds,  and  other  Evidences  of  Indebtedness  —  stipulated 
interest.     (Sec.  14.) 

On  Preferred  Stock  —  stipulated  dividends.     (Sec.  14.) 
On  Common  Stock  —  six  per  cent.     (Sec.  14.) 


Service  At  Cost  Aoreemexts 


173 


Westerville 

Six  per  cent  on  Initial  Value,  including  $25,000  of  Working 
Capital,  and  excluding,  for  the  first  ten  years  of  the  Grant, 
$75,000  of  the  agreed  upon  value  of  $350,000 ; 

Eight  per  cent  on  additional  capital  in  general; 

Fifteen  per  cent  on  new  capital  invested  in  the  part  of  the 
enterprise  located  in  the  incorporated  Village  of  Linden  Heights. 
(Sec.  10.) 

Dallas 

The  return  allowed  the  Company  is  based  on  the  Property 
Value  as  fixed  by  the  Grant,  irrespective  of  securities  and  varies 
as  the  rate  of  fare  varies. 

AVhen  the  base  fare  rate  is  five  cents,  22  tickets  for  $1,  the 
allowable  rate  of  return  is  seven  per  cent; 

When  the  base  fare  rate  is  five  cents,  six  tickets  for  25  cents, 
the  allowable  rate  of  return  is  eight  per  cent; 

When  the  base  fare  rate  is  five  cents,  seven  tickets  for  25  cents, 
the  allowable  rate  of  return  is  eight  and  one-half  per  cent; 

When  the  base  fare  rate  is  five  cents,  eight  tickets  for  25  cents, 
the  allowable  rate  of  return  is  nine  per  cent.     (Sec.  23.; 

Memphis 

The  return  upon  the  investment  shall  not  l>e  more  than  71/^, 
nor  less  than  6^/^  per  centum,  per  annum. 

For  any  month  in  which  the  Fare  Index  Fund  balance  is  less 
than  $60,000,  the  return  shall  not  be  greater  than  at  the  rate  of 
^V2  P^i*  centum  per  annum. 

In  any  month  when  the  Fare  Index  Fund  balance  is  more  than 
$60,000,  the  return  may  be  at  any  rate,  between  6^  and  71^  per 
centimi  per  annum,  which  the  Company  is  able  to  pay  after  pro- 
viding the  remaining  costs  of  service,  without  reducing  the  Fare 
Index  Fund  below  $60,000. 

If  in  any  month,  it  is  not  possiblo  to  pay  the  minimum  return 
of  6 14  per  centum  per  annum  to  the  Company,  then  such  deficit 
shall  be  accumulated,  and  with  interest  at  6^^  per  eentiun  per 
annum,  paid  to  the  Company  from  future  earnings  l)efore  any 
amounts  are  added  to  the  Fare  Index  Fund. 


174 


Service  At  Cost  Agreements 


5.~ADDITI0NAL  ALLOWANCES 


Kona 


E'one. 


Cleveland 


YOUNGSTOWN 


Cincinnati 
When  fare  is  six  cents,  twenty  per  cent  of  surplus  receipts 
remaining  after  payments  specified  in  E  1   (Sec.  22  of  Grant) 
shall  be  paid  to  Company. 

When  fare  is  &ve  and  one-half  cents,  thirty  per  cent  shall  be 
paid  to  Company. 

When  the  fare  is  five  cents  or  less,  forty-five  per  cent  shall  be 
paid  to  Company.     (Sec.  22  H.) 


None. 


None. 


Boston 
Massachusetts  (General) 


Montreal 

If,  during  the  year,  the  Company  keeps  within  102i/^  per  cent 
of  the  Operating  Allowance  (see  E-2),  fixed  by  the  Commission, 
or  if,  upon  decision  by  the  Commission  after  examination  of  a 
statement  to  be  filed  by  the  Company  during  the  year,  or  imme- 
diately after  the  close  of  the  year,  that  any  excess  expenditures 
were  unnecessary  and  unavoidable— one-eighth  of  one  per  cent 
of  average  capital  value  for  the  year  (known  as  Operating  Profit) 
shall  be  allowed  the  Company,  except  that  in  the  case  the  Com- 
mission shall  find  any  part  of  any  excess  to  have  been  the  result 
of  unnecessary  and  avoidable  expenditures,  then  such  part  as  it 
finds  to  have  been  unnecessary  and  avoidable  shall  be  deducted 
from  the  Operating  Profit.     (Art.  92;  Par.  1.) 

For  expenses  incurred  in  securing  new  capital,  including  dis- 
counts, commissions,  printing  and  engraving,  exchange,  legal  and 
other  expenses  in  connection ' with  the  issuing  of  bonds;  and 
printing,  engraving,  transfer  and  registration  fees,  and  the  listing 
on  stock  exchanges,  of  stock  — annually,  $181,431.37  (being  one 
half  of  one  per  cent  of  initial  value),  provided  that  this  money 


Service  At  Cost  Agreements 


175^ 


is  to  be  used  for  no  other  purpose  and  the  surplus  kept  in  a  special 
account,  not  to  be  disturbed  until  the  termination  of  the  contract. 
(Art.  92;  Par.  3.) 

After  the  payment  of  all  charges  provided  for  in  the  contract^ 
the  surplus  of  gross  revenues  remaining  (known  as  the  Divisible 
Surplus)  are  divided,  thirty  per  cent  to  the  city,  twenty  per  cent 
to  the  Company  and  fifty  per  cent  to  the  Tolls  Reduction  Fund* 
(Art.  92;  Par.  6.) 


'None. 

None. 

No  provisions. 

No  provisions. 


Eastern  Massachusetts 

Westerville 

Dallas 

Memphis 


6.— ASSURANCE  OF  RETURN 

Cleveland 
The  only  assurance  of  return  contained  in  this  grant,  is  the- 
provision  for  the  automatic  regulation  of  fares.  If  the  Company 
believes  that  the  service  demanded  by  the  City,  is  so  great  as  to 
jeopardize  the  return  to  the  Company,  even  though  the  highest 
rate  of  fare  be  in  force,  it  may  appeal  to  a  Board  of  Arbitration^ 
which  shall  decide  the  question.  (Sec.  9.)  See  also  under  A,  2, 
provisions  for  control  of  rates  and  service,  when  grant  has  lesa 
than  fifteen  years  to  run. 

Youngstown 

Only  such  assurance  of  return  as  is  given  by  the  automatic  regu- 
lation  of  fares.  If  the  Company  believes  that  the  service  prescribed 
by  the  City  is  so  great  as  to  jeopardize  its  return  under  any  rat& 
of  fare  stipulated  in  the  grant,  or  that  the  proposals  for  Extensions^ 
Betterments  and  Permanent  Improvements  made  by  the  City, 
jeopardize  such  rate,  it  may  submit  the  question  to  a  Board  of 
Arbitration.     (Sees.  6  and  15-C.) 

Wlhen  the  Grant  has  less  than  15  years  to  run,  the  Company  maj 
charge  such  rate  of  fare  as  will  insure  its  stipulated  return,  and  a 


I    ♦!!' 


H' 


•SwncE  At  Cost  AoREEirEWTs 


'i™ 


mliewitt  adclitioiial  amount  to  amortize  the  entire  value  of  the 
property  iJiirrag  the  remaining  life  of  the  franchise.     (See.  18.) 

ClXClNXATI 

f  he  assurance  of  return  given  is  that  provided  b^  the  automatic 
regulation  of  fares.  If  the  Company  believes  that  the  service  pre- 
scribed by  the  city  cannot  be  performed  under  the  budget  allow- 
ance, the  determination  is  left  to  a  court  of  coinj^etent  jurisdiction. 
Similarly  orders  of  the  City  providing  for  capital  expenditures 
may  be  disputed  by  the  Company.    ( Sec.  8. ) 

The  obligation  of  the  City  is  further  limited  by  the  following 
paragraph :  «  I^othing  in  this  Paragraph  22  shall  l>e  construed 
to  make  any  payment  or  payments,  or  cumulative  payment  or  pay- 
ments obligations  of  the  City  or  to  make  any  cumulative  payment 
or  payments  obligations  between  the  City  and  the  Companies  pay- 
able  from  any  source  other  than  gross  receipts  and  the  sum  or  sums 
from  time  to  time  in  the  aforesaid  Keserve  Fund.    (Sec.  22.) 

BOSTOX 

If,  on  the  last  day  of  June,  or  the  last  day  of  December,  in  any 
year,  the  amount  in  the  Beserve  Fund,  shall  be  insufficient  to  make 
good  any  deficiency  in  the  cost  of  service,  the  Trustees  shall  notify 
the  Tieasurer  and  the  Keeeiver  General  of  the  State  of  the  amount 
of  such  deficiency,  less  any  amount  remaining  in  the  Reserve  Fund, 
and  the  State  shall  thereupon  pay  over  to  the  Trustees  the  amount 
so  ascertained,  which  shall  be  used  for  the  purpose  of  paying  such 
cbficiency.     (Sec.  11.) 

Pending  the  payment  of  this  sum  by  the  State  it  shall  be  the 
duty  of  the  Tnistees  to  borrow  such  sums  as  will  enable  them  to 
meet  all  deficiencies,  including  dividend  payments.     (Sec.  11.) 

If  on  tlie  last  day  of  June,  or  the  last  day  of  December  of  any 
year,  the  Reserve  Fund  shall  exceed  the  original  $1,000,000,  the 
Trustees  shall  apply  the  excess,  bo  far  as  necessary,  to  the  reim- 
bursement of  the  State  for  the  money  advanced  to  the  Trustees  to 
meet  deficiencies.    (Sec.  11.)    ' 

The  Treasm-er  and  Receiver  General  of  the  State  may  borrow 
if  necessary  the  money  with  which  to  pay  the  deficiencies  ascer- 
tained by  tfee  Receiver  "General.     (Sec.  11.) 


Service  At  Cost  Agreements 


17T 


The  amounts  so  paid  to  the  Trustees  shall  be  assessed  upon  the 
cities  and  towns  in  which  the  Company  operates  by  an  addition 
to  the  State  tax  next  levied,  in  proportion  to  the  luimber  of  persons 
in  said  towns  and  cities  using  the  service  of  the  company  at  the  tinie 
of  the  payment,  this  proportion  to  be  ascertained  by  the  Trustees 
and  certified  to  the  Treasurer  and  Receiver  General.     (Sec.  14.) 

Massachusetts  (General) 

Only  such  as  is  afforded  by  a  scale  of  fares,  automatically  ad- 
justed to  cover  the  cost  of  service. 

Montreal 
Assurance  of  return  is  given  through  provisions  making  it 
mandatory  upon  the  Commission  to  increase  rates  of  fare  in  such 
amount  as  will  provide  for  the  payment  of  all  charges  set  forth  in 
the  agreement.     (Art.  92;  Par.  6.) 

Eastern  Massachusetts 
The  I^ew  Company  is  authorized  to  issue  $5,000,000  of  serial 
bonds,  to  provide  for  the  retirement  of  Receiver's  Certificates,  and 
other  evidences  of  indebtedness,  a  Reserve  Fund  of  $500,000,  and 
the  improvement  and  betterment  of  the  property.  Of  this  amount 
$1,000,000  was  provided  by  the  stockholders  of  the  old  Company^ 
with  no  special  assurance  of  return.  For  the  remaining  $4,000,000, 
the  Trustees  were  authorized  to  enter  into  an  agreement  with  the 
purchasers,  whereby,  if  the  earnings  of  the  Company  applicable  to 
dividends  were  insufficient  to  pay  installments  falling  due,  the 
State  Treasurer  should  advance  the  necessary  money,  taking  in 
exchange  serial  bonds  to  the  amount  thus  advanced. '  These  bonds 
are  thus  purchased  by  the  State  on  account  of  the  various  cities 
and  towns  served  by  the  Company,  in  proportion  to  the  number 
of  persons  in  such  cities  and  towns  using  the  service  of  the  Com- 
pany. The  Trustees  may  borrow  sufficient  money  to  pay  install- 
ment of  serial  bonds  due  in  anticipation  of  purchase  by  the  State  - 
the  State  Treasurer  may  borrow  in  anticipation  of  contributions 
from  the  cities  and  towns,  and  the  cities  and  towns  may  borrow 
in  disregard  of  their  debt  limit  for  this  purpose.  If  on  June  30,. 
or  December  31,  of  any  year,  earnings  of  the  Company  applicable 


ii 


n 


178 


Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


179 


to  dividends  are  in  excess  of  any  sums  needed  to  pay  installments 
due  on  serial  bonds,  such  excess  shall  be  used  in  purchasing 
serial  bonds  held  by  the  State  on  account  of  cities  and  towns 
(Sees.  9,  10.) 

Further  assurance  of  return  is  afforded  by  a  flexible,  automatic 
system  of  fares,  adjusted  by  the  Trustees  to\he  cost  of  the  service. 
(Sec.  17.) 

Westebville 
Assurance  of  return  is  provided  by  the  automatic  regulation  of 
fares  (Sec.  12) ;  by  the  provision  that  when  the  Grant  has  less  than 
fifteen  years  to  run,  control  of  service  and  fares  passes  to  the  Com- 
pany (Sec.  7) ;  by  the  prohibition  against  the  Commissioners 
requiring  service  that  jeopardizes  the  return  upon  the  investment 
(Sec.  7)  ;  and  by  the  prohibition  of  requirements  for  Extensions, 
Betterments  and  Permanent  Improvements  that  would  do  the  same 
thing.    (Sec.  14.) 

Dallas 

There  is  no  other  assurance  of  return  than  that  provided  by  the 
sliding  scale  of  fares,  and  the  authority  given  the  Company  to 
demand  arbitration  in  regard  to  requirements  for  Service,  or  Exten- 
sions, Betterments  and  Improvements  which  it  believes  will 
jeopardize  its  ability  to  earn  the  stipulated  return,  under  the 
highest  fare  permitted  by  the  Grant. 

Memphis 

There  is  no  assurance  of  retui-n,  other  than  the  provision  for  a ' 
fiexible  rate  of  fare. 

E.  COST  OF  SERVICE 

1.— DEFINITION  OF 

Clevelai^d 

There  is  no  separate  definition  of  the  elements  of  the  cost  of 
service  in  grant.  Authorization  for  the  following  payments,  are, 
however,  found  in  various  provisions  of  the  ordinance: 

Operating  expenses  (including  insurance,  payments  of  claims, 
salary  and  expenses  of  City  Street  Railroad  Commissioner,  which 
:ahall  not  exceed  one  per  cent  of  operating  allowance  for  the  year ; 


expenses  of  Commissioner  in  supervising  plans  for  extensions, 
betterments  and  permanent  improvements,  when  such  are  not 
actually  made,  (if  made  such  expenses  are  charged  to  construc- 
tion) ;  the  expenses  of  Boards  of  Arbitration,  not  to  exceed  $5,000 
in  any  six  months  (excess  expenses  are  charged  to  the  Interest 
Fund),  and  transportation  provided  for  employes  of  the  Company 
other  than  office  employes) ; 

Maintenance,  depreciation  and  renewals; 

Rentals ; 

Taxes ; 

Interest ; 

Dividends. 

There  is  no  recital  of  the  elements  which  go  to  make  up  the 
cost  of  service  in  the  grant.  Provision  is  made  for  the  payment 
of: 

Operating  Cost  (inasmuch  as  the  method  of  keeping  accounts 
prescribed  by  the  American  Electric  Railway  Accountants'  Asso- 
ciation is  adopted,  it  may  be  taken  for  granted  that  the  provisions 
of  the  I.  C.  C.  Standard  Classification  of  Accounts  is  followed). 
(Sec.  1.) 

Return  to  capital.     (Sec.  13.) 

Specific  provisions  are  made  for  the  payment  of  the  following 
items  as  Operating  Costs: 

The  cost  of  paving,  repaving  and  street  repairs  other  than  that 
necessitated  by  the  extensions  of  the  present  lines.     (Sec.  5.) 

The  salary  of  the  Commissioner,  not  to  exceed  $600  a  month. 
(Sec.  8.) 

The  ordinary  expenses  of  the  Commissioner,  not  to  exceed 
$900  a  month.     (Sec.  8.) 

The  expenses  of  the  Commissioners  in  preparing  plans  for 
Extensions,  Betterments  and  Permanent  Improvements,  proposed 
by  the  City,  and  in  checking  similar  plans  proposed  by  the  Com 
pany,  when  such  plans  are  not  carried  out  When  they  are 
carried  out  they  become  part  of  the  cost  of  the  improvement. 
(Sec.  15-D.) 


180 


Service  At  Cost  Agreements 


I 


The  expenses  of  Boards  of  Arbitration,  except  that  expensee 
m  e^^  of  $1,000  for  any  period  of  six  months,  shall  be  paid 
iBom  the  Stabilizing  Fund.     (Sec.  9-B.) 

Expenses  incident  to  the  i«ue  and  sale  of  stock  and  bouas  or 
the  creation  of  floating  debt.     (Sec  10-B.)  ' 

The  difference  between  the  estimated  value  of  any  property 
as  n  appears  in  Original  Capital  Value,  and  the  price  at  which 
n  IS  80ld,  ,f  It  be  sold.  (This  difference  to  be  amortized  over  a 
pmod  of  time,  to  be  completed  before  the  expiration  of  the  grant.) 

The  rental  agreed  upon,  for  the  Company's  offices  in  the  build- 
ing^ the  Mahoning  &Shenango  Railway*  Light  Co.     (Sec  11-C  ) 

The  expenses  of  the  Commissioner  in  investigating  the  Com- 
pany s  methods  of  fare  collection,  purchases  and  the  compensation 
paid  to  employes.     (Sec.  14- A.) 

Twenty-five  per  cent  of  the  cost  of  rebunding  certain  of  the 
Company  s  cars  as  provided  for  in  the  grant.     (Sec.  15-A.) 

CmcxasA-n 
Tkwc  is  no  reeital  of  the  elements  of  cost  of  service  but  pro- 
vision ,8  made  for  the  payment  from  gross  receipts  of  the  f oUow- 
ing  Items,  in  the  order  named : 

First.—  Operating  expenses  and  maintenance,  including  taxes 
«cept  the  special  Percentage  Tax  on  gross  earnings;  Deprecia- 
tion (until  1922  at  the. rate  which  was  formerly  charged  bv  the 
Company  and  after  1922  at  a  rate  to  be  fixed  by  the  Ohio  Public 
Ltilities  Commission).     From  the  amount  allowed  for  l>epre- 
muon  8haU  be  paid,  until  the  Ohio  Public  Utilities  Commission 
shall  otherwise  order,  the  principal  payments  on  $1,159,000  of 
equipment   notes,   outstanding  at  the  time  the  Grant   became 
effective.     During  the  period  of  six  years  from  April  1    1919 
m  quarterly  installments,  to  the  City  and  the  Company,  the  costs 
ofraluation  proceedings  and  a  traffic  survey  formerly  made. 
C«tam  rentals  for  tracks,  poles  and  other  construction  on  three 
eity  viaducto,  amounting  to  $6,500  a  year.     The  payment  of  the 
legal  «xp««,s  of  both  the  City  and  the  Company  in  cases  grow- 
ing out  of  the  resistance  or  enforcement  of  ordinances,  orders 
or  decisions  in  connection  with  the  provisions  of  the  Grant. 


Service  At  Cost  Agreements 


181 


Second.—  The  payment  to  the  Cincinnati  Street  Eailway  Co., 
of  the  sum  of  $1,134,337,  annually,  being  the  amount  of  rental 
provided  for  in  its  lease  to  the  Cincinnati  Traction  Company, 
or  suck  otker  rental  as  may  be  later  agreed  upon  between  the  two 
companies,  subject  to  the  approval  of  the  Director  of  Street  Eail- 
roads.  The  payment  to  the  Cincinnati  &  Hamilton  Traction  Co., 
of  $100,600  annually,  being  the  amount  of  rental  paid  for  the 
use  of  the  tracks  of  the  aforesaid  company.     (Sec.  22.) 

Third.—  The  payment  to  the  Company,  annually  of  $215,000 
interest  and  $82,445  sinking  funds  on  $4,000,000  expenditures 
made  by  the  Company  prior  to  1917,  and  interest  on  the  equip- 
ment notes,  provision  for  the  payment  of  the  principal  of  which 
is  made  in  paragraph  first  The  $4,000,000  above  referred  to 
and  the  $1,159,000  Equipment  notes  are  to  be  known  as  the  Re- 
ducible Debt,  and  payments  on  account  thereof  shall  cease  when  it 
is  fully  retired.     (Sec.  22.) 

Jourth.-  The  payment  of  the  annual  interest,  dividend,  sink- 
ing fund  or  retirement  payments  on  securities  issued  with  the 
approval  of  the  City,  for  capital  expenditures,  ait^r  the  taking 
eifeet  of  the  ordinanca     The  payment  of  interest  on  loans  made 
by  the  Company  after  the  taking  effect  of  the  Grant,  until  such 
loans  shall  be  paid  from  gross  receipts,  or  from  the  sale  of  securi- 
tiw  issued  with  the  approval  of  the  City.     The  payment  of  inter- 
est on  floating  debt  and  for  money  borrowed  to  produce  the  Com- 
pany's portion  of  the  Reserve  Fund.    The  payment  of  interest  on 
equipment  notes  issued  after  the  taking  effect  of  the  Grant,  pro- 
vided such  notes  are  issued  with  the  approval  of  the  City.     The 
payment  of  principal  on  equipment  notes  provided  for  in  the 
first  paragraph,  if  the  Ohio  Public  Utilities  Commission  shall 
decide  that  they  may  not  be  paid  from  depreciation  reserve.    The 
payment  to  the   City  of  expenditures  in  connection  with   the 
placing  of  tracks  and  poles  on  the  Hopple  street  viaduct.     (Sec 
22.) 

Fifth. —  The  payment  annually  to  the  Company  of  $416,000 
return  on  capital  invested  by  it,  between  the  time  of  the  taking 
effect  of  the  leases,  given  to  the  Cincinnati  Traction  Co.,  by  the 
Cincinnati  Street  Railway  Co.  and  the  Cincinnati  &  Hamilton 


) 


182 


Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


183 


Traction  Co.,  and  the  time  the  Grant  took  effect.  This  Capital 
is  considered  to  be  in  addition  to  that  known  as  the  Reducible 
Debt.     (Sec.  22.) 

Sixth. —  The  payment  to  the  City  annually  of  a  Gross  Earnings 
Tax  of  $350,000.  The  payment  to  the  City  of  certain  arrears  in 
the  Gross  Earnings  Tax.     (Sec.  22.) 

Seventh. —  The  accumulation  of  a  Working  Capital  Fund. 
This  shall  be  accrued  under  the  direction  of  the  Director  of 
Street  Railroads  at  such  time  and  in  such  amount  as  he  shall 
approve,  and  shall  be  sufficient  for  the  usual  purpose  of  such  a 
fund.  It  shall  be  increased  or  decreased  at  his  direction,  upon 
notice  being  given  at  least  45  days  before  the  end  of  any  calendar 
year,  and  if  decreased,  the  amount  taken  shall  be  expended  for 
improvements  and  betterments,  or  extensions. 

Eighth. —  The  payment  into  the  Reserve  Fund,  of  such  an 
amount  as  will,  added  to  the  $250,000,  provided  by  the  Company 
from  capital,  bring  the  amount  up  to  $400,000,  which  shall  be 
known  as  the  IS'ormal  Condition  of  the  fund.     (Sec.  22.) 

When  the  rate  of  fare  shall  be  more  than  six  cents,  the  payment 
into  the  Reserve  Fund  of  all  surplus  remaining  after  the  items 
heretofore  mentioned  have  been  paid. 

When  the  rate  of  fare  shall  be  six  cents,  the  payment  into  the 
Reserve  Fund  of  eighty  per  cent  of  the  surplus  and  to  the  Com- 
pany of  twenty  per  cent. 

When  the  rate  of  fare  shall  be  five  and  one-half  cents,  the  pay- 
ment into  the  reserve  fund  of  seventy  per  cent  of  the  surplus  and 
to  the  Company  of  thirty  per  cent. 

When  the  rate  9f  fare  shall  be  five  cents  or  less,  the  payment 
into  the  Reserve  Fund  of  fifty-five  per  cent  of  the  surplus  and  to 
the  Company  of  forty-five  per  cent.    (Sec.  22.) 

Boston 
The  cost  of  the  service  includes : 

Operating  expenses, 

Taxes, 

Rentals, 

Interest  on  indebtedness, 


Depreciation, 

Obsolescence, 

Losses  in  respect  to  property  sold,  destroyed  or  abandoned, 

All  other  expenditures  and  charges  which,  under  the  laws  of  the 
Commonwealth  now  or  hereafter  in  effect,  may  be  properly  charge- 
able against  income  or  surplus. 

Fixed  dividends  on  preferred  stock. 

Dividends  on  par  value  of  common  stock,  at  five  per  cent,  for 
first  two  years  of  period  of  public  control  and  management,  five 
and  one-half  per  cent,  for  next  two  years  and  six  per  cent  there- 
after.    (Sec.  6.) 

Massachusetts  (General) 
The  Cost  of  the  Service  shall  include: 

Operating  expenses, 

Taxes, 

Rentals, 

Interest  on  all  indebtedness  approved  by  Public  Service  Com- 
mission, 

Dividends  on  preferred  stock. 

Interest  at  six  per  cent  on  stock  investment. 

Such  allowance  for  depreciation,  obsolescence  and  for  losses  in 
respect  to  property  sold,  destroyed  or  abandoned  as  may  be  fixed 
by  the  Commission, 

All  other  expenditures  and  charges  recognized  under  I.  C.  C. 
Classification  of  Accounts,  and  the  Laws  of  Massachusetts,  as 
proper  charges  against  income  or  surplus.     (Sec.  2.) 

Montreal 

The  term  "  cost  of  service ''  is  not  used  in  the  grant,  but  pro- 
vision is  made  for  the  payment  of  the  following  charges  in  the 
order  given.     (Art.  92.) 

Operating  expenses,  including,  among  other  things,  the  expenses 
of  the  Commission,  insurance,  payments  for  claims  and  damages 
and  a  reserve,  fixed  by  tin;  Commissioner,  to  recover  claims  and 
damages  liabilities.     (Art.  92;  Par.  1.) 

Taxes.     (Art.  92;  Par.  1.) 

Operating  Profit.     (Art.  92;  Par.  1.) 


184 


Service  At  Cost  Agreements 


ii. 


♦ 


Maintenance,     renewals,      replacements     and      substitutions. 

(Art.  92;  Par.  2.) 
Eetuni  on  Initial  Value.     (Art  92;  Par.  3.) 
Return  ou  Added  Value.     (Art  92;  Par.  3.) 
Eetum  ou  Working  Caprtal.     (Art.  92;  Par.  3.) 
Allowance  for  the  expenses  of  securing  new  capital   ($181,- 

431.47).    (Art.  92;  Par.  3.) 

Rental  to  the  City  at  $500,000  a  year.    (Art.  92;  Pai\  5.) 

EasTEKN   MASSACHUSETTa 

The  cost  of  the  service  includes: 

Maintenance, 

Other  operating  expenses, 

Taxes, 

Rentals, 

Interest  on  bonds,  serial  bonds  and  other  interest  payments. 

Stated  dividends  on  preferred  stock, 

Six  per  cent  on  common  stock, 

Allowance  for  depreciation,  obsolescence,  rehabilitation  and 
losses,  as  deemed  adequate  by  the  Trustees, 

Other  expenditures  and  charges,  which,  under  the  Massachu- 
setts laws,  now  or  hereafter  in  effect,  may  be  chargeable  against 
income  or  surplus.     (Sec.  14.) 

Westekvilxe 
There  is  no  formal  definition  of  the  cost  of  service.    Provision 
is  made,  however,  for  the  payment  of  the  following  items: 

(a)  Each  month,  one-tweLfth  of  the  estimated  annual  cost  of 
all  taxes,  to  be  accrued  until  due; 

(b)  Each  month  one-twelfth  of  annual  interest  to  be  retained 
by  the  Company,  on  the  then  Capital  Value; 

(c)  Wages, 
Salaries, 

Power  costs,  ' 

Current  repairs, 

Maintenance  (current  and  deferred), 


Service  At  Cost  AoREE^rENTs 


185 


Damage  claims,  due  to  operation  of  passenger  service  on  West- 
erville  line  north  of  Seventeenth  avenue,  or  of  freight  line  at  any 
point, 

Proportionate  share  of  expenses  of  Company's  Claim 
Department, 

All  other  expenditures  properly  chargeable  to  operating  costs, 
Interest  on  indebtedness  incurred  in  the  construction,  main- 
tenance  or  operation  of  the  line. 

Dallas 

It  is  provided  that  the  monthly  Gross  Receipts  (defined  as 
including  all  sums  received  from  the  conduct  of  the  business  car- 
ried on  under  the  Grant  and  from  the  Terminal,  profits  derived 
from  the  sale  of  merchandise,  rentals  from  real  estate,  buildings, 
tracks,  sidings  and  equipment,  and  miscellaneous  revenues  from 
whatever  source  (Sec.  1)  shall  be  devoted  to  the  following  pur- 
poses and  in  the  following  order : 

1.  Payment  of  Operation  Expenses,  defined  as  including  all 
expenditures  usually  so  classified  by  the  American  Electric  Rail- 
way Accountants  Association,  but  in  any  event  all  expenditures  for 
Labor  and  materials  used  in  repairing,  maintaining,  preserv- 
ing, renewing,  replacing  and  operating  Company's  property, 
including  that  held  under  lease,  insofar  as  they  are  not  chargeable 
to  Property  Value,  or  paid  from  Repair,  Maintenance  and  Depre- 
ciation Reserve; 

Insofar  as  they  are  not  chargeable  to  Property  Value,  all  insur- 
ance premiums,  legal  expenses,  accounting  and  office  expenses, 
rentals  for  property  or  rights,  except  rentals  paid  under  lease 
from  Northern  Texas  Traction  Co.,  losses,  taxes  and  charges 
imposed  by  governmental  authorities,  expenditures  and  liabilities 
(insofar  as  they  are  not  paid  out  of  Accident  Reserve)  fox 
injuries  and  damages  to  persons  and  property; 

Officers'  salaries  and  expenses; 

Expenses  for  advertising; 

All  expenses  not  chargeable  to  Property  Value,  properly  made 
and  incurred; 

Interest  on  Working  Capital.     (Sec.  1.) 


I 


m 


186 


Service  At  Cost  Agreements 


2.  Ten  per  cent  of  Monthly  Gross  Receipts  to  apply  to  the 
creation  and  maintenance  of  the  Repairs,  Maintenance  and 
Depreciation  Reserve; 

3.  Until  there  has  been  accumulated  an  amount  equal  to  six 
per  cent  of  Railway  Gross  Receipts  for  the  twelve  months,  then 
next  preceding  (with  which  amount  the  Reserve  shall  be  con- 
sidered as  "  normal "  unless  the  Company  and  the  Board  of  Com- 
missioners otherwise  agree),  six  per  cent  of  the  monthly  Railway 
Gross  Receipts,  to  constitute  the  Accident  Reserve; 

4.  Payment  to  the  Company  of  five-twelfths  of  one  per  cent  of 
the  Property  Value,  on  account  of  stipulated  return.  This  is  at 
the  rate  of  five  per  cent  per  annum; 

5.  Further  payments  to  the  Company  on  account  of  stipulated 
return,  it  being  provided  that  for  every  one-twelfth  of  one  per 
cent  on  Property  Value  so  paid  to  the  Company,  there  shall  be 
paid  into  the  Repair,  Maintenance  and  Depreciation  Reserve,  in 
addition  to  the  payments  provided  by  2  three  per  cent  of  Rail- 
way Gross  Receipts  of  the  month ; 

6.  The  balance  of  Gross  Receipts,  remaining  after  the  pay- 
ments in  1  to  5,  inclusive,  shall  be  paid  into  the  Repair,  Main- 
tenance and  Depreciation  Reserve,  until  that  Reserve  shall  for 
the  calendar  year  equal  eighteen  per  cent  of  the  total  Railway 
Gross  Receipts  for  the  year; 

7.  If  in  any  calendar  year,  subsequent  to  the  taking  effect  of 
the  Grant,  there  shall  have  been  less  than  eighteen  per  cent  of 
Railway  Gross  Receipts  paid  into  the  Repair,  Maintenance  and 
Depreciation  Reserve,  then  after  the  monthly  payments  provided 
in  1  to  6,  inclusive,  shall  have  been  made,  the  balance  of  Gross 
Receipts  shall  be  paid  into  the  Repair,  Maintenance  and  Deprecia- 
tion Reserve,  until  such  deficits  shall  have  been  made  good. 

8.  Any  balance  remaining  of  Gross  Receipts,  after  the  pay- 
ment of  1  to  7,  inclusive,  shall  be  paid  into  Surplus  Reserve^ 
when  the  amount  in  the  Surplus  Reserve  shall  equal  eight  per 
cent  of  the  then  Property  Value,  its  condition  shall  be  considered 
"normal,"  unless  the  Company  and  the  Board  of  Commissioners 
shall  agree  upon  another  percentage; 

Payments  into  the  Repair,  Maintenance  and  Depreciation 
Reserve  may  cease  when  the  amount  of  the  Reserve  is  '^  normal.'^ 


Service  At  Cost  Agreements 


187 


When  the  highest  rate  of  fare  provided  in  the  Grant  is  in  effect, 
the  Reserve  shall  be  considered  "normal,"  when  it  amounts  to 
six  per  cent  of  the  then  Propertv  Value.  When  the  next  highest 
fare  is  in  effect,  it  shall  be  considered  normal  when  it  amounts 
to  ten  per  cent  of  the  then  Property  Value.  When  the  condition 
of  the  Reserve  is  "normal,"  the  Company  may  pay  to  itself, 
from  Gross  Receipts,  the  full  return  allowed  it  by  the  Grant. 
(Sec.  22.) 

Memphis 
The  cost  of  service  shall  include  — 

Operating  expenses,  including  allowances  for  both  a  Renewals 
and  Replacement  Reserve  and  a  Injuries  and  Damage  Reserve; 
Taxes ; 
Return  on  investment. 


8.— ALLOWANCES 

(a)  Operating 

Cleveland 

The  Operating  Allowance  is  fixed  by  the  original  grant  at  111/4 
cents  per  revenue  car  mile,  exclusive  of  car-house  and  car-yard 
miles,  and  of  cars  used  in  carrying  materials  for  the  construction 
and  repair  work  of  the  Company,  for  each  motor  car,  and  of  60 
per  cent  of  lli^  cents,  for  each  revenue  car  mile  made  by  trailer 
cars.  (Sec.  18.)  In  the  Renewal  Grant  the  operating  allowance 
was  fixed  at  191^  cents. 

The  Operating  Allowance  may  be  decreased  or  increased  by 
agreement  between  the  City  and  the  Company,  or  by  the  action 
of  a  Board  of  Arbitration.     (Sec.  20.) 

Youngstown 

*  The  Operating  Allowance  is  fixed  by  the  Grant  at  22  cents  per 
car  mile,  for  cars  equipped  with  motors  and  60  per  cent,  of  22 
cents  for  trailer  cars.     (Sec.  11.) 

The  Operating  Allowance  may  be  changed  by  agreement  between 
the  City  and  the  Company,  or  by  a  Board  of  Arbitration.  (Sec 
11-A.) 


*  Note :     The  operating  allowance  has  already  been  increased,  effective  May 
Ist,  1919,  to  27  cents  per  car  mile. 


188 


Sertice  At  Cost  Agreemekj^ts 


ClNCnSTKATI 

A  budget  plan  is  provided  by  the  terms  of  the  Grant.  Forty- 
five  days  before  the  end  of  each  year,  the  Company  shall  submit 
to  the  Director  of  Street  Railroads,  an  estimate  of  gross  receipts 
and  operating  expenses  covering  the  ensuing  yesiT,  The  form  pro- 
vided by  the  I.  C.  C.  Uniform  System  of  Accounts  for  Electric 
Railways  to  be  followed.  The  Director  shall  within  ten  days, 
either  approve  or  disapprove  such  Budget.  In  case  of  disagree- 
ment, the  controversy  shall  be  submitted  to  arbitration.  (See  C6 
(a),  Par.  3.     Sec.  8  of  Grant.) 

At  any  time  during  the  year  the  Company  may  submit  a  Supple- 
mentary Budget  or  estimate,  which  follows  the  same  course  as  the 
original  Budget.     (Sec.  8.) 

Expenditures  for  operation  shall  not  be  made  except  under  the 
General  I.  C.  C.  accounts,  and  shall  not  exceed  the  amounts  under 
each  account  named  in  the  Budget,  except  that  with  the  approval 
of  the  Director  transfers  may  be  made  from  oiie  aecount  to 
another.     (Sec.  8.) 

Boston 

Ko  allowances  are  fixed  by  the  Act.  Expenditures  are  made  in 
the  judgment  of  the  Trustees. 

Massachusetts  (General) 

1^0  allowance  provided  for  in  the  Act.  Under  general  laws, 
Public  Service  Commission  has  extensive  jurisdiction. 

Montreal 
The  Operating  Allowance  is  a  sum  fixed  by  the  Commission  for 
each  revenue  ear  mile,  exclusive  of  car-house  and  car-yard  miles, 
operated  by  motor  cars,  except  Company  cars,  with  additional 
sums  for  revenue  car  miles  run  by  trailers,  and  freight  cars, 
again  exclusive  of  car-house  and  car-yard  miles.  The  Operating 
Allowance  is  fixed  each  year  by  the  Commission  in  connection 
with  its  fixing  of  the  permissible  average  density  of  traffic  per 
car-mile,  and  the  agreement  provides  that  it  shall  be  based  upon 
the  actual  and  necessarj^  expenses  of  operation  for  the  previous 
year,  and  modifications  of  service,  changing  costs,  or  any  circum- 
stances which  influence  the  cost  of  operation.     If  in  any  jear 


•r  I 


Service  At  Cost  Agreements 


189 


there  shall  be  an  excess  in  cost  of  the  Operating  Allowance,  which 
shall  be  determined  by  the  Commission  to  have  been  necessary, 
such  fact  shall  be  taken  into  consideration  in  fixing  the  allowance 
for  the  following  year.     (Art.  92;  Par.  1.) 

Eastern  Massachusetts 

No  allowance  fixed  by  the  Act.  It  is  left  to  the  judgment  of 
the  Trustees. 

Westerville 

Operating  expenditures  are  left  to  the  judgment  of  the  Com- 
pany, except  that  the  Commissioners  may  object  to  the  propor- 
tion of  salaries  and  other  expenses,  allocated  to  the  Westerville 
line,  in  which  case  the  dispute  is  arbitrated.     (Sec.  13.) 

Dallas 

No  operating  allowance  is  provided  for  in  the  Grant. 

Memphis 

There  is  no  provision  for  an  operating  allowance.  The  Injuries 
and  Damage  allowance  is  fixed  by  the  Commission,  and  is  paid  into 
the  Injuries  and  Damage  Reserve,  minus  only  such  amounts  as  may 
be  expended  on  account  of  payments  for  injuries  and  damages  as 
prescribed  in  the  I.  C.  C.  Standard  Classification  of  Accounts. 
The  Injuries  and  Damage  Reserve,  which  shall  consist  of  the 
amount  in  the  Company's  reserve  for  this  purpose  at  the  time 
the  order  became  eifective,  plus  the  monthly  credits  on  account 
of  the  allowance  for  injuries  and  damage  as  directed  by  the  Com- 
mission. The  balance  in  the  fund  shall  be  deposited  or  invested 
in  the  bonds  of  the  Company  as  prescribed  by  the  Commission. 

(b)  Maintenance 

(&-i)  Definition 

Cleveland 
There  is  no  attempt  to  define  the  dividing  line  between  Main- 
tenance   and    Depreciation    and    Renewals.      A    "  Standard    of 
Repair  "  is,  however,  established  as  follows : 

la 


I 


f  I 


Service  At  Cost  Agreements 


"  The  intent  ...  is  to  enable  the  Company  to  maintain, 
renew,  replace,  preserve  and  keep  its  railway  system  and  property, 
and  every  part  thereof,  and  all  extensions,  betterments  and  per- 
manent improvements  .  .  .  in  good  condition,  thorough  repair 
and  working  order,  the  standard  of  such  condition,  repair  and 
working  order  being  an  average  for  the  entire  system  of  70 
per  cent,  of  its  reproduction  value.     (Sec.  20.) 

YOUNOSTOWN 

A  "  Standard  of  Repair  "  is  set  up  as  follows: 

The  intent  hereof  with  r^ard  to  the  sum  authorized  by  Sec- 
tion 12  to  be  set  aside  fro  Maintenance,  Repair  and  Renewal  is  to 
enable  the  Company  to  maintain,  repair  and  renew,  replace  and 
preserve,  and  keep  its  railway  system  and  property  enumerated 
in  Section  10  and  schedules  thereof,  and  all  extensions,  better- 
ments and  permanent  improvements  hereafter  made  pursuant 
hereto,  in  good  condition,  thorough  repair  and  working  order  " 
(Sec.  12-B.) 

Disputes  as  to  the  definition  of  Extensions,  Betterments  and 
Permanent  Improvements  in  distinction  to  Maintenance,  Repair 
and  Renewal  shall  be  arbitrated.    (Sec.  15.) 

Cincinnati 
The  Company  is  required  by  the  terms  of  the  Grant  to  keep  its 
property  "  in  such  repair  and  condition  as  shall  be  sufficient  at 
all  times  for  the  safe  and  convenient  operation  of  cars  and  traffic 
therein  and  thereon  and  for  the  safety  and  accommodation  of 
passengers  and  property  carried  and  for  the  protection  of  the 
City  from  liability  to  the  public  and  shall  restore  and  replace 
every  necessary  part  which  may  wear  out  or  cease  to  be  useful." 
(Sec.  8.) 

Inasmuch  as  the  Grant  provides  for  the  submission  of  the 
Budget  under  the  form  set  forth  in  the  I.  C.  C.  System  of 
Accounts,  the  definitions  used  therein  may  be  considered  to  hold. 


Boston 


'No  allowance  provided  for. 


Service  At  Cost  Agreements  191 

Massachusetts 
No  allowance  provided  for. 

Montreal 
The  agreement  provides  that  "the  entire  plant  and  property 
of  the  Company  used  and  necessary  to  provide  the  public  trans- 
portation service  shall  at  all  times  be  maintained  at  the  highest 
practicable  standard  of  operating  efficiency."  The  Maintenance 
Allowance  shall  be  used  "  for  the  purpose  of  maintenance,  renewals, 
replacements  and  substitutions  made  necessary  by  wear  and  tear, 
age,  obsolescence,  inadequacy,  accident  or  other  cause."  (Art 
92;  Par.  2.) 

Eastern  Massachusetts 
Act  contains  no  definition. 


II 


^ 


Westerville 
Grant  contains  no  definition. 

Dallas 
See  C.  3.  (a). 

Memphis 
The  order  contains  no  definition  of  maintenance  in  contra- 
distinction to  Renewals  and  Replacements,  but  provides,  as  to 
the  Renewal  and  Replacement  Reserve,  that  it  "  shall  be  used  for 
the  sole  purpose  of  providing  renewals  and  replacements  (other 
than  ordinary  maintenance)  due  to  ordinary  depreciation,  obso- 
lescence or  abandonment,  as  may  be  prescribed  by  the  Commis- 
sion from  time  to  time,  and  in  accordance  with  the  accounting 
methods  prescribed  herein." 

(h-2)  How  Fixed 

Cleveland 

The  Maintenance,  Depreciation  and  Renewal  Allowance  was 
fixed  by  the  terms  of  the  original  grant,  upon  the  basis  of  revenue 
car  mileage,  as  for  the  operating  allowance,  as  follows : 

In  January,  February,  March,  April,  May  and  December,  four 
cents  per  oar  mile  for  motor  cars ;  60  per  cent  of  four  cents  a  car 
mile  for  revenue  trailers. 


192 


Service  At  Cost  Agreements 


t 


In  November,  five  cents  a  car  mile,  for  motor  cars;  60  per  cent 
of  ^Ye  cents  a  car  mile  for  revenue  trailers. 

In  June,  July,  August,  September  and  October,  sLx  cents  a  car 
mile  for  motor  cars;  60  per  cent  of  six  cents  per  car  mile  for 
revenue  trailers.  (Sec.  19.)  In  the  Kenewal  Agreement  one  cent 
per  car  mile  was  added  for  each  month. 

The  Maintenance,  Depreciation  and  Renewal  Allowance  may 
be  decreased  or  increased  by  agreement  between  the  City  and  the 
Company,  or  by  the  action  of  a  Board  of  Arbitration.     (Sec.  20.) 

The  allowance  for  Maintenance,  Depreciation  and  Renewals 
is  credited  to  a  separate  fund.  No  expenditures  from  this  fund, 
can  be  made  without  the  approval  of  the  City.  (Sec.  20.)  All 
amounts  not  needed  for  maintenance  or  renewals,  are  accumulated 
and  invested  in  the  bonds  of  the  Company,  or  in  such  of  its  float- 
ing indebtedness,  as  forms  part  of  its  capital  value.  If  any  part 
of  the  amount  so  invested  is  needed  for  maintenance  and  renewals, 
the  Company  may  issue  new  bonds  or  floating  indebtedness  to  the 
amount  of  such  investment,  which  bonds  or  floated  indebtedness 
becomes  a  part  of  capital  value.     (Sec.  20.) 

The  Maintenance,  Depreciation  and  Renewals  Allowance,  shall 
not  be  diminished,  until  such  time  as  the  value  of  the  Company's 
property  together  with  the  amount  accumulated  in  the  Mainte- 
nance, Depreciation  and  Renewals  fund,  shall  equal  70  per  cent  of 
the  reproduction  value  of  the  value  of  the  entire  system.  (Sec. 
20.) 

YOUNOSTOWN 

The  Maintenance,  Repair  and  Renewal  Allowance  is  fixed  by 
the  Grant  at  eight  cents  a  car  mile  for  motor  cars  and  60  per  cent 
of  eight  cents  for  trailers.     (Sec.  12.) 

The  Maintenance,  Repair  and  Renewal  Allowance  may  be 
changed  by  agreement  between  the  City  and  the  Company,  or  by  a 
Board  of  Arbitration.     (Sec.  12-a.) 

Changes  to  the*  Maintenance,  Repair  and  Renewal  Account, 
must  be  approved  by  the  City.  In  the  event  of  disagreement, 
arbitration  shall  be  resorted  to.'  (Sec.  12-A.) 

Cincinnati 

Allowances  for  Maintenance,  Repairs  and  Renewals  are  fixed 
by  the  Company  in  the  Budgets  and  supplements  thereto,  subject 
to  the  approval  of  the  Director  of  Street  Railroads.    (Sec.  8.) 


Service  At  Cost  Agreements 


I9:i 


Boston 
No  allowances  fixed  by  the  Act.    Expenditures  are  made  in  the 
judgment  of  the  Trustees. 

Massachusetts  (General) 

No  allowance  provided  for  in  the  Act.  Public  Service  Com- 
mission now  has  certain  jurisdiction. 

Montreal 

The  Maintenance  Allowance  is  a  sum  fixed  by  the  Commission 
for  each  revenue  car-mile,  exclusive  of  car-house  and  car-yard 
miles,  operated  by  motor  cars,  with  additional  sums  for  revenue 
car-miles  operated  by  trailers  and  freight  cars,  again  exclusive  of 
car-house  and  car-yard  miles.     (Art.  92 ;  Par.  2.) 

The  Maintenance  Allowance  is  paid  into  the  Maintenance  and 
Renewals  Fund.  To  this  fund  is  also  added  moneys  received  from 
the  sale  of  property  listed  in  the  schedule  upon  which  the  Initial 
Value  was  based,  when  the  Trustees  for  the  Bondholders  give  their 
consent  to  such  addition.     (Art.  92;  Par.  2.) 

In  the  case  of  property  replaced  subsequently  to  the  date  of 
Initial  Value,  when  the  cost  shall  be  less  than  the  actual,  or  the 
reproduction  cost,  or  when  any  such  property  is  sold  and  not 
replaced,  moneys  so  received  shall  be  credited  to  the  Maintenance 
and  Allowance  Fund,  and  expended  for  the  making  of  additions, 
betterments  and  extensions,  and  that  proportion  of  the  cost  of 
such  additions,  betterments  and  extensions  paid  for  by  such 
moneys  shall  not  be  charged  to  Capital  Value.    (Art.  92 ;  Par.  2.) 

In  addition  there  shall  be  paid  from  the  Maintenance  and 
Renewals  Fund : 

The  actual  and  necessary  expenses  of  maintenance  and  renew- 
als.    (Art.  92;  Par.  2.) 

The  cost  of  the  replacement  or  substitution  of  any  unit  of  the 
property  listed  in  the  valuation  upon  which  Initial  Value  is  based, 
up  to  the  full  reproduction  cost  of  said  unit.     (Art.  92;  Par.  2.) 

The  actual  cost  of  the  replacement  or  substitution  of  any  item 
added  to  the  property  subsequent  to  the  valuation  upon  which 
Initial  Value  is  based.     (Art.  92;  Par.  2.) 


194 


Service  At  Cost  Agreements 


> 


Money  not  required  for  these  purposes  shall  be  held  in  the 
Maintenance  and  Eenewals  Fund,  until  it  is  required,  or  for 
investment  in  additions,  betterments  and  improvements.  (Art. 
92;  Par.  2.) 

The  Commission  may,  from  year  to  year,  increase  or  decrease 
the  amount  of  the  Maintenance  Allowance  as  is  required  to  pro- 
vide such  an  allowance  ajs  will  keep,  except  temporarily,   the 
Maintenance  and  Renewal  Fund  at  $500,000,  or  more.     (Art 
92;  Par.  2.) 

The  Fund  is  under  the  control  of  the  Commission,  and  money 
therein  may  not  be  paid  out,  loaned,  or  invested,  except  with  the 
Commission's  permission.  Bank  or  other  interest  thereon,  is 
added  to  and  becomes  a  part  of  the  fund.     (Art.  92 ;  Par.  2.) 

If,  in  the  judgment  of  the  Commission,  the  condition  of  the 
fund  warrants  the  loan,  the  Company,  when  it  is  compelled  to 
furnish  new  capital,  must  first  borrow  from  the  Maintenance  and 
Renewals  Fund,  in  which  case  the  return  of  six  per  cent,  received 
by  the  Company  thereon,  is  paid  into  the  Maintenance  and  Renew- 
als fund.     (Art.  92;  Par.  3.) 

In  case  the  City  acquires  the  property  of  the  Company  at  the 
termination  of  the  agreement,  the  Maintenance  and  Renewals 
Fund  becomes  the  property  of  the  City,  and  its  amount  shall  not 
be  added  to  the  purchase  price.  Any  money  borrowed  by  the 
Company  from  the  fund  and  due  at  the  time  of  purchase,  if  not 
be  repaid  by  the  Company,  shall  be  deducted  from  the  purchase 
price.     (Art.  92;Pai-.  2.) 

Eastern  Massachusetts 

Ho  allowance  fixed  by  the  Act.  It  is  left  to  the  judgment  of 
the  trustees. 

Westerville 

Ko  allowance  fixed  by  grant. 

Dallas 

See  provisions  for  Repair,  Maintenance  and  Depreciation 
Reserve,  under  E.  1. 

Memphis 

* 

1^0  provision  for  Maintenance  allowance. 


J I 


Service  At  Cost  Agreements  195 

(c)  Depreciation 

Cleveland 
Included  in  Maintenance  and  Renewals. 

YOUNGSTOWN 

Included  in  Maintenance  and  Renewals. 

Cincinnati 

Provision  is  made  for  the  accumulation  of  a  Depreciation 
Reserve,  the  amount  to  be  paid  into  such  reserve  for  the  first  five 
years  of  the  Grant,  being  fixed  as  that  previously  allowed  by  the 
Companies  themselves.  After  five  years  the  amount  of  Depre- 
ciation allowance  is  to  be  fixed  by  the  Public  Utilities  Commission 
of  Ohio.  Until  the  Commission  shall  otherwise  order,  payments 
sufficient  to  retire  $1,159,000  of  Equipment  notes,  as  th^  mature, 
shall  be  paid  from  the  Depreciation  Reserve.     (Sec.  22.) 

Depreciation  funds  shall  be  invested  or  deposited  by  the  Com- 
pany as  approved  by  the  Director  of  Street  Railroads  and  shall 
be  used  for  renewals  and  replacements.     (Sec.  22.) 

Boston 

The  allowance  for  depreciation  is  specifically  left  to  the  judg- 
ment of  the  Trustees.  They  are,  however,  required  to  provide  for 
obsolescence  and  "  losses  in  respect  to  property  sold,  destroyed  or 
abandoned."     (Sec.  6.) 

The  Trustees  are  further  required  to  maintain  the  property  in 
"  good  operating  condition  and  to  make  such  provision  for  depre- 
ciation, obsolescence  and  rehabilitation,  that,  upon  the  expiration 
of  the  period  of  public  management  and  operation,  the  property 
shall  be  in  good  operating  condition."     (Sec.  13.) 

Massachusetts  (General) 

Allowance  for  "  depreciation,  obsolescence  and  losses  in  respect 
to  property  sold,  destroyed  or  abandoned,"  fixed  from  time  to  time 
by  the  Public  Service  Commission.     (Sec.  2.) 

During  the  period  of  the  war  and  for  one  year  thereafter,  the 
allowance  may,  in  the  discretion  of  the  Commission,  be  smaller 
than  would  be  considered  adequate  in  normal  times.     (Sec.  13.) 


ii 


196 


Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


197 


The  Public  Service  Commission  may  order  Company  to  dispose 
of  property  no  longer  useful,  the  loss  +o  be  amortized  over  a  period 
of  not  more  than  ten  years.     (See  1^^ 

Montreal 
See  Montreal  (E-2-(b-2) 

Eastern  Massachusetts 
Fixed  by  the  Trustees.  (Sec.  14.)  Subject  to  the  approval 
of  the  Public  Service  Commission  the  Trustees  are  authorized 
for  the  period  of  the  war,  and  for  a  time,  not  exceeding  one  year 
thereafter,  to  waive  the  setting  aside  of  any  depreciation  allow- 
ance.    (Sec.   17.) 

Westerville 

There  is  no  direct  provision  for  the  accumulation  of  a  Depre- 
ciation Reserve.  In  the  cost  of  the  service,  Deferred  Mainten- 
ance is  one  of  the  items  provided  for. 

Dalias 
"  The  Grantee  covenants  that  it  will  at  all  times  keep  all  its 
property,  including  the  property  embraced  in  said  lease  from 
JJ^orthern  Texas  Traction  Company,  in  good  and  businesslike  order 
and  repair  and  as  a  whole  in  condition  to  give  effective  service.  To 
this  end,  and  to  the  end  also  that  replacements  and  renewals  may 
be  made  from  time  to  time  as  necessary  to  maintain  the  property 
in  such  condition  and  to  offset  depreciation  in  the  physical  con- 
dition of  the  property  as  a  whole,  and  that  new  types  of  equipment 
may  be  introduced  to  supersede  those  that  become  antiquated  or 
obsolete  according  to  commonly  accepted  commercial  standards  in 
the  business,  the  Grantee  will  set  up  in  the  manner  hereinafter 
provided,  a  Repair,  Maintenance  and  Depreciation  Reserve,  and 
will  use  the  same  when  and  to  the  extent  necessary  for  such  pur- 
poses and  for  those  purposes  only,  save  as  herein  otherwise  pro- 
vided."    (Sec.  17.)  ' 

The  Grant  sets  up  three  Reserves —  "  Repair,   Maintenance 
and  Depreciation,"  "Accident "  and  "  Surplus." 


In  addition  to  the  general  provision  for  the  use  of  the  Repair, 
Maintenance  and  Depreciation  Reserve,  just  quoted,  the  Grant 
provides  for  the  following  uses: 

In  case  any  property  included  in  Property  Value  is  sold  for 
less  than  its  cost  (or  in  the  case  of  property  acquired  prior  to  the 
date  of  the  valuation  of  the  Company's  property  and  sold  within 
two  and  one-half  years  of  the-  taking  effect  of  the  grant,  its  value 
as  of  that  date,  the  loss  so  incurred  may  be  made  good  out  of  the 
Repair,  Maintenance  and  Depreciation  Reserve.     (Sec.  20.) 

In  case  any  of  the  Company's  property  is  destroyed  by  fire,  or 
other  calamity,  the  loss  sustained,  may  be  made  good  out  of  the 
Repair,  Maintenance  and  Depreciation  Reserve.     (Sec.  20.) 

When  old  or  worn  out  property,  including  pavement  and  street 
improvements  but  not  repairs  thereto,  is  replaced  by  new  prop- 
erty such  difference  between  the  cost  of  the  new  property  and 
that  of  the  old  property,  as  cannot  be  charged  to  Extensions, 
Betterments  and  Improvements  under  Section  26  of  the  Grant, 
shall  be  charged  to  the  Repair,  Maintenance  and  Depreciation 
Reserve,  or  to  Operating  Expenses.     (Sec.  26.) 

If  at  the  expiration  or  termination  of  the  lease  of  the  property 
of  the  I^orthem  Texas  Traction  Co.,  the  Company  is  obligated  to 
make  good  any  depreciation,  the  amount  thereof  shall  be  paid 
from  the  Repair,  Maintenance  and  Depreciation  Reserve,  or  from 
the  Surplus  Reserve,  or  shall  be  amortized  from  Gross  Receipts. 
(Sec.  46.) 

The  Surplus  Reserve  is  created  as  an  equalizing  fund  "  to  pro- 
mote the  orderly  and  economical  operation  and  development  of 
the  Grantee's  business  and  to  provide  for  any  unexpected  or 
unusual  contingencies  or  reverses  therein."  (Sec.  21.)  The  Grant 
states  the  following  specific  purposes  for  which  it  may  be  used : 

1.  Temporarily  carrying  the  charges  or  burdens,  except  inter- 
est and  charges  during  construction,  of  the  unprofitable  stages  of 
extensions  or  additions     (Sec.  21.); 

2.  Carrying  the  burdens  incident  to  reduction  of  fares  or  other 
changes  seriously  affected  profits  of  the  business  for  the  time 
being     (Sec.  21)  ; 

3.  Preventing  frequent  or  violent  fluctations  in  fares     (See 
21); 


198 


Service  At  Cost  Agreements 


i 


4.  Promoting  the  periodic  payment  of  return  to  the  Company 
(Sec.  21) ; 

5.  To  bring  either  the  Accident  Reserve,  or  the  Repair,  Main- 
tenance and  Depreciation  Reserve,  up  to  "  normal,"  when  either 
or  both  shall  be  below  "  normal "  and  the  Surplus  Reserve,  is 
more  than  ten  per  cent  above  "normal."     (Sec.  25.) 

6.  In  case  any  property  included  in  Property  Value  is  sold  for 
less  than  its  cost  (or  in  the  case  of  property  acquired  prior  to 
that  date  of  the  valuation  of  the  Company's  property  and  sold 
within  two  and  one-half  years  of  the  taking  effect  of  the  Grant, 
its  value  as  of  that  date),  the  loss  so  incurred  may  be  made  good 
out  of  the  Surplus  Reserve.     (Sec.  20.) 

7.  In  case  any  of  the  Company's  property  is  destroyed  by  fire, 
or  other  calamity,  the  loss  sustained  may  be  made  good  out  of  the 
Surplus  Reserve.     (Sec.  20.) 

8.  If  at  the  expiration  or  termination  of  the  lease  of  the  prop- 
erty of  the  Northern  Texas  Traction  Co.,  the  Company  is  obli- 
gated to  make  good  any  depreciation,  the  amount  thereof  may 
be  paid  from  the  Surplus  Reserve.     (Sec.  46.) 

The  Accident  Reserve  is  established  as  an  equalizing  fund,  for 
the  purpose  of  meeting  losses,  not  charged  to  Operating  Expenses, 
on  account  of  persons  killed  or  injured  and  property  damaged 
and  destroyed,  where  such  losses  are  not  covered  by  insurance  as 
provided  by  Section  20  of  the  Grant,  as  well  as  the  legal  expenses 
involved.  Losses  occuring  from  these  causes  in  Connection  with 
Extensions,  Betterments  and  Improvements,  are  a  charge  against 
such  Extensions,  Betterments  and  Improvements  and  may  not 
be  charged  to  Accident  Reserve.     (Sec.  21.) 

Moneys  in  any  of  the  three  Reserves,  may  be  used  for  increas- 
ing the  facilities  for  serving  the  public  (in  which  case  the  amount 
shall  not  be  added  to  Property  Value),  or  may  with  the  approval 
of  the  Board  of  Commissioners  be  invested  in  high  grade  Texas 
securities.  Earnings  of  these  funds  shall  be  applied  at  the  dis- 
cretion of  the  Company  either  to  increase  the  Accident  Reserve 
or  the  Repair,  Maintenance  and  Depreciation  Reserve,  if  either 
is  below  "  normal,"  or  as  a  credit  to  Operating  Expenses.  (Sec. 
B2.) 


Service  At  Cost  Agreements 


199 


Memphis 

A  Renewal  and  Replacement  Resei^e  is  provided  for.  This 
consists  of  the  amount  reserved  for  renewals  and  replacements  at 
the  time  the  order  took  effect  (April  1,  1920),  plus  allowance  paid 
into  the  fund  monthly  as  a  cost  of  the  service.  This  allowance 
is  based  on  the  Company's  investment  in  depreciable  property, 
which  is  declared  to  be,  as  of  July  1,  1919,  the  date  of  the  Initial 
Investment,  $7,600,000  as  compared  to  total  investment  of  $11,- 
846,034.  Until  there  shall  be  accumulated  in  the  Renewal  and 
Depreciation  Reserve  the  amount  of  $500,000  and  thereafter, 
when  the  balance  in  the  fund  shall  be  more  than  $300,000,  but 
less  than  $500,000,  there  shall  be  paid  into  the  Fund  monthly 
as  a  part  of  the  cost  of  service,  one-twelfth  of  3  per  centum  of  the 
investment  in  depreciable  property. 

When  the  balance  in  the  Renewal  and  Replacement  Reserve 
shall  be  more  than  $500,000,  the  monthly  payments  shall  be  one- 
twelfth  of  2  per  centum,  and  when  it  shall  be  less  than  $300,000, 
the  monthly  payments  shall  be  one-twelfth  of  4  per  centiun. 

The  Renewal  and  Replacement  Reserve  shall  be  used  only  for 
the  purpose  of  providing  renewals  and  replacements,  other  than 
ordinary  maintenance,  and  payments  therefrom  are  to  be  made 
with  the  approval  of  the  Commission,  in  accordance  with  the 
methods  prescribed  by  the  I.  C.  C.  Classification  of  Accounts. 
The  balance  in  the  fund  shall  be  invested  in  the  bonds  of  the 
Ccinpany,  or  deposited  as  the  Commission  may  approve  and 
intei'est  thereon  shall  be  credited  to  the  Reserve. 

8.—  SPECIAL  TAX  AND  IMPOST  FEATURES 

Cleveland 

By  the  terms  of  the  grant  the  Company  is  exempted  from  the 
payment  of  the  "  car-license  fee  "  which  was  before  exacted  from 
street  railway  companies.     (Sec.  6.) 

The  Company  is  required  to  maintain  the  pavement  between 
its  tracks  and  one  foot  outside  thereof,  but  is  not  required  to 
repave.    (Sec.  7.) 

The  Company  is  required  to  carry  free,  firemen  and  policemen 
in  uniform,  while  on  duty.     (Sec.  30.) 


^1 


I 


300 


Service  At  Cost  Agreements 


% 

I  'I; 

■  t     : 

r ! 

I 

I;' 


The  Company  is  required  to  operate  hospital,  supply  and  other 
special  cars  for  the  City.  The  City  supplies  and  maintains  the 
cars,  and  pays  the  wages  of  employes  in  charge  thereof,  and  for 
current,  but  no  fixed  charges,  or  track  maintenance  or  renewals, 
(Sec.  23.) 

YOUNGSTOWN 

The  Company  is  required  to  pave,  repave,  and  maintain  pave- 
ment between  its  tracks  and  one  foot  outside  thereof,  on  all  streets 
and  bridges  with  the  same  material  as  the  rest  of  the  street  is 
paved  with,  except  that  it  is  not  required  to  use  sheet  asphalt,  the 
City  having  the  privilege  to  designate  some  other  material,  no  more 
expensive.     (Sec.  5.) 

The  Company  is  required  to  sprinkle  the  space  between  its  tracks 
and  one  foot  outside.    (Sec.  5.) 

The  Company  is  required  to  transport  free,  policemen,  firemen 
and  sanitary  policemen  of  the  City.    (Sec.  14-D.) 

The  Company  is  obliged  to  provide  and  operate,  at  actual  cost, 
cars  for  municipal  purposes.     (Sec.  14r-E.) 

Cincinnati 

(a)  Taxes: 

The  Company  is  required  to  pay  an  annual  Gross  Earnings  Tax 
of  $350,000.     (Sec.  22-F.) 

'(Note. —  This  is  in  lieu  of  paving  taxes  and  assessments,  excepting  that 
the  Company  is  required  to  replace  paving  which  it  disturbs.) 

(b)  Imposts: 

The  Company  is  compelled  to  carry  free,  policemen  and  firemen, 
when  in  uniform.    (Sec.  12.) 

The  Company  shall  operate  cars  for  such  exclusively  municipal 
purposes  on  such  terms,  conditions  and  compensation  as  shall  be 
authorized  by  Council  and  agreed  upon  between  the  City  and  the 
operating  company.    (Sec.  20.) 

Boston 

'No  special  taxes  or  imposts  are  provided  for  but  the  Act  contains 
the  following  declaration:  "Nothing  herein  contained  shall  be 
held  to  affect  the  right  of  the  Commonwealth  or  any  subdivision 


Service  At  Cost  Agreements 


201 


thereof  to  tax  the  Company  or  its  stockholders  in  the  same  manner 
and  to  the  same  extent  as  if  the  Company  had  continued  to  manage 
and  operate  its  own  property."    (Sec.  2.) 

Massachusetts.  (General) 
No  provisions. 

Montreal 

An  annual  rental  of  $500,000  is  paid  from  gross  revenues  to 
the  City.     (Art.  92;  Par.  4.) 

The  City  receives  30  per  cent  of  surplus  remaining  after  costs 
provided  for  in  the  Agreement  are  paid.     (Art.  92 ;  Par.  G.) 

The  Company  shall  pay  for  the  cost  of  pavement  between  its 
tracks  and  eighteen  inches  outside  thereof.     (Art.  42.) 

The  Company  shall  maintain  pavement  between  its  tracks  and 
eighteen  inches  outside  thereof.    (Art.  46.) 

The  Company  must  renew  wooden  poles  with  iron  poles,  and 
in  new  construction  use  iron  poles.     (Art.  45.) 

The  Company  is  forbidden  to  use  T  rails,  in  streets  paved  with 
permanent  pavement,  including  asphalted  macadam.     (Art.  52.) 

The  City  shall  have  the  right  to  use  the  Company's  poles  for 
stringing  City  wires  and  for  signs  giving  information  of  public 
interest.     (Art.  65.) 

The  Company  is  required  to  keep  its  tracks  free  from  snow  and 
ice,  and  if  the  City  itself  elects  to  remove  the  snow  and  ice  from 
the  entire  street  the  Company  shall  pay  one-half  the  cost  thereof. 
(Art.  66.) 

If  the  City  elects  to  open  a  street  across  the  Company's  right  of 
way,  it  may  cross  the  lands  of  the  Company,  without  being  liable 
for  damages  and  without  payment  for  such  land.     (Art.  67.) 

The  Company  shall  make  connections  between  its  tracks  and 
sidings  and  municipal  establishments  and  yards  at  cost  price. 
(Art.  69.) 

In  the  case  of  firo,  the  wires  of  the  Company  may  be  cut  on  the 
order  of  the  Chief  of  the  Fire  Department,  and  the  Company  may 
not  claim  damages  therefor.     (Art.  73.) 

Policemen  and  firemen,  employed  by  the  City  or  by  any  munic- 
ipality served  by  the  Company,  shall  be  transported  free,  as  shall 
the  members  of  the  Commission  and  its  employes.     (Art.  80.) 


»t 


202 


Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


203 


The  Company  shall  at  the  request  of  the  City  have  special  tickets 
printed  to  he  used  exclusively  by  City  employes.  The  regular 
price  shall  be  charged  therefor.     (Art.  81.) 

Eastern  Massachusetts 
For  the  period  of  the  war  and  for  two  years,  thereafter,  the 
Company  is  relieved,  unless  the  Public  Service  Commission  after 
a  hearing  decides  otherwise,  from  paying  the  cost  of  the  construc- 
tion, alteration,  maintenance,  or  repair  of  streets,  bridges,  or  of 
structures  in  connection  therewith ;  for  the  abolition  of  grade  cross- 
ings, or  the  undergrounding  of  wires,  except  that  it  must  restore 
street  surfaces  disturbed  by  it  in  connection  with  railway  work 
and  shall  not  be  relieved  from  certain  obligations  incurred  before 
the  passage  of  the  Act.  It  is  provided  further,  however,  that  any 
work  of  construction  for  which  the  Company  may  have  been  obli- 
gated shall  be  postponed  for  two  years  after  the  war,  unless  in  the 
opinion  of  the  Trustees  public  necessity  requires  the  continuance  of 
the  work  covered  by  such  obligations.     (Sec.  20.) 

Westerville 

The  Company  is  required,  where  its  tracks  are  in  an  improved 
highway  located  south  of  the  Corporation  of  Linden  Heights  to 
maintain  the  roadway  between  its  tracks  and  one  foot  outside,  in 
the  same  manner  as  the  rest  of  the  highway  is  maintained. 
(Sec.  6.) 

When  the  highway  in  which  the  tracks  of  the  Company  north 
of  the  Corporation  of  Linden  Heights  is  improved,  the  Company 
is  required  to  construct  and  maintain  between  its  rails  and  one 
foot  outside  "  boulevard  construction."  (Sec.  6.) 

The  Company  is  required  to  maintain  and  keep  in  repair  all 
culverts  and  drains  beneath  its  roadbed  and  one  foot  outside  its 
tracks.  In  the  case  of  new  drains  and  culverts  it  shall  pay  for 
the  construction  of  that  portion  under  its  roadbed  and  one  foot 
outside  its  rails.     (Sec.  6.) 

Dallas 

By  the  terms  of  the  Grant  the  Company  is  relieved  from  all 
municipal  charges,  fees,  rentals,  pole  rentals,  wire  taxes,  inspection 


or  other  charges,  and  taxes  of  every  kind,  except  ad  valorem  taxes 
and  special  assessments  for  public  improvements.     (Sec.  47.) 

The  Company  is  required  to  make  any  changes  in  traeks  and 
wires,  ordered  by  the  Board  of  Commissioners,  to  permit  the  con- 
struction or  alteration  in  pipe  lines  or  cables  owned  by  the  City, 
and  shall  assume  the  expenses  thereof.     (Sec.  5.) 

The  Company  is  obliged  to  pave  and  maintain  paving  between 
its  tracks  and  twenty-four  inches  outside.     (Sec.  6.) 

The  Company  is  obliged  to  furnish  free  transportation  to  police- 
men and  to  firemen  when  required  by  the  City,  to  the  extent  per- 
mitted by  law.     (Sec.  24.) 

The  City  is  given  the  right  to  string  its  wires  upon  the  poles 
of  the  Company,  providing  the  use  of  the  poles  is  not  interfered 
with  by  the  City,  and  no  expense  to  the  Company  is  involved. 
(Sec  3.) 

Memphis 
^o  provisions. 

F.    FARES 

1.— SCHEDULES  OP 

Cleveland 

The  Schedule  of  Fares  as  amended  by  action  of  the  City  Coun- 
cil, August  3,  1918,  follows: 

1.  Six  cents  cash ;  nine  tickets  for  fifty  cents ;  one  cent  transfer, 
no  rebate. 

2.  Five  cents  cash ;  five  tickets  for  twenty-five  cents ;  one  cent 
transfer,  no  rebate. 

3.  Five  cents  cash ;  eleven  tickets  for  fifty  cents ;  one  cent  trans- 
fer, no  rebate. 

4.  Five  cents  cash;  six  tickets  for  twenty-five  cents;  one  cent 
transfer,  no  rebate. 

6.  Four  cents  cash;  five  tickets  for  twenty  cents;  one  cent  trans- 
fer, no  rebate. 

,  It  is  provided  by  the  Grant  that  the  Company  shall  under  any 
rate  of  fare  in  force  sell  reissuable  tickets.     (Sec.  21.) 

Provision  is  made  for  the  sale  or  issuance  of  transfers  good 
between  all  routes  of  the  Company,  except  those  in  an  opposite 
direction,  or  parallel  or  substantially  parallel.    Such  transfers  are 


\ 


>■* 


2'04 


Service  At  Cost  Agreements 


It 


good  only  on  the  next  car,  or  within  five  minutes  of  their  issu- 
ance. Pas&engers  are  required  to  use  sudh  transfers  upon  lines, 
which  will  take  them  most  directly  to  their  destination  without  the 
use  of  a  second  transfer.     (Sec.  21.) 

A  child  under  six  years  of  age,  is  carried  free,  hut  two  children 
under  six  years  of  age  travelling  with  a  single  passenger,  are 
charged  a  single  fare,  for  hoth.    (Sec.  21.) 

The  fares  provided  for  by  the  schedules  provided  for  in  the 
Grant,  are  for  rides  within  the  limits  of  the  City  of  Cleveland,  as 
they  existed  at  the  time  of  the  adoption  of  the  schedule.   (Sec.  21.) 

Younostown 

Kate  A. —  Three  cents  cash,  nine  tickets  for  25  cents,  one  cent 
for  transfer. 

Rate  B. —  Five  cents  cash,  eight  tickets  for  25  cents,  one  cent 
for  transfer. 

Eate  C. —  Five  cents  cash,  seven  tickets  for  25  cents,  one  cent 
for  transfer. 

Rate  D. —  Five  cents  cash,  six  tickets  for  25  cents,  one  cent 
for  transfer. 

Rate  E. —  Five  cents  cash,  no  tickets,  one  cent  for  transfer. 

Rate  F. —  Six  cents  cash,  nine  tickets  for  50  cents,  one  cent 
for  transfer. 

Rate  G. —  Seven  cents  cash,  eight  tickets  for  50  cents,  one  cent 
for  transfer. 

Rate  H. —  Eight  cents  cash,  seven  tickets  for  50  cents,  one  cent 
for  transfer. 

Rate  I. —  E^ine  cents  cash,  six  tickets  for  50  cents,  one  cent  for 
transfer. 

When  Rate  B  becomes  effective  the  City  shall  establish  a  rate 
of  fare  lower  than  Rate  A  and  bearing  the  same  relation  to 
Rate  A  that  Rate  A  bears  to  Rate  B.  When  Rate  H  becomes 
effective  the  City  shall  establish  a  rate  of  fare  higher  than  Rate  I, 
and  bearing  the  same  relation  to  Rate  I  that  Rate  I  bears  to 
Rate  H.     (Sec.  14.) 

School  or  special  tickets,  not  good  before  7  a.  m.  or  after  5  p.  m. 
on  week  days,  or  at  all  on  Sundays  or  legal  holidays,  shall  be  sold 
at  a  price  to  be  agreed  upon  between  the  City  and  the  Company. 


Service  At  Cost  Agreements 


205 


The  holders  thereof  shall  pay  one  cent  additional  for  transfer. 
(Sec.  14-A.) 

Children  under  six  years  of  age  accompanied  by  a  person  pay- 
ing fare  shall  be  carried  free.     (See  14-A.) 

The  City  and  the  Company  may  agi-ee  upon  any  rate  of  fare 
not  specified  in  the  schedule,  but  the  matter  of  the  installation 
of  such  a  fare  is  not  subject  to  arbitration.  (Sec.  14.) 
.  Tickets  shall  be  sold  upon  all  cars.  Tickets  sold  under  a 
different  rate  of  fare  than  that  at  the  time  in  force  shall  not  be 
accepted,  but  shall  be  redeemed  at  any  office  of  the  Company  for 
the  price  paid  therefor.     (Sec.  14-A.) 

Transfers  shall  be  issued  from  one  route  of  the  system  to  any 
other  routes,  except  in  a  substantially  opposite  direction,  or  to  a 
route  substantially  parallel.  They  are  good  on  the  car  of  the 
second  route  next  passing  the  point  of  transfer.  The  Company 
shall,  subject  to  the  approval  of  the  City,  make  reasonable  rules 
for  the  issuing  of  transfers.     (Sec.  14-A.) 

The  Grant  provides  that  Rate  E,  five  cents  cash,  no  tickets, 
one  cent  for  transfer,  becomes  effective  upon  the  taking  effect  of 
the  Grant.     (Sec.  14-B.) 

The  fares  provided  for  and  the  transfers  to  be  issued  are  for  a  ride  within 
the  City  limits  of  Youngstown  and  within  certain  specified  limits  outside 
thereof.     (Sec.  14-B.) 

Cincinnati 
The  schedule  of  Fares  provided  in  the  Grant  is  as  follows: 
a.  Initial  fare: 

For  passengers  over  ten  years  of  age,  five  cents. 

Children  under  ten  years,  two  and  one-half  cents. 

Children  in  arms,  free. 

Passengers  on  inclined  plane,  two  and  one-half  cents.  (No 
transfers  issued.)     (Sec.  20.) 

Fares  to  be  increased  or  decreased  as  cost  of  service  varies,  as 
follows : 

For  passengers  over  ten  years  of  age,  by  one-half  cent  stage. 

For  passengers  under  ten  years  of  age,  by  one-half  the  amount 
of  increase  provided  for  passengers  over  ten  years  of  age. 

For  passengers  on  inclined  plane,  by  one-half  the  amount  of 
increase  provided  for  passengers  over  ten  years  of  age.  (Sec.  20.) 
14 


I 


ll 


206 


Service  At  Cost  Agreements 


Tickets  shall  be  sold  at  all  times  —  For  passengers  over  ten 
years  of  age,  in  strips  of  six  at  six  times  the  fare  then  m  force 
and  for  passengers  less  than  ten  years  old  in  strips  of  four  at 
four  times  the  single  fare  then  in  force.     (Sec.  20.) 

When  the  fare  in  force  produces  a  fraction  of  a  cent,  the  cash 
fare  shall  be  the  whole  number  above  the  rate  of  fare  producing 
the  fraction.     (Sec.  20.) 

When  fare  is  decreased  or  increased  outstanding  tickets  shall 
be  void,  but  shall  be  redeemed  by  the  Company  at  the  price  paid 
therefor.     (Sec.  20.) 

The  Company  is  authorized,  subject  to  the  approval  of  the 
Director  of  Street  Railroads,  to  make  rules  and  regulations  for 
the  collection  of  fares  and  the  issuance  of  tickets.     (Sec.  20.) 

The  Grant  provides  that  passengers  shall  not  be  carried  for 
a  less  fare  to  points  outside  the  city  than  to  points  within. 
(Sec.  20.) 

The  Grant  provides  that  the  Company  shall  issue  free  transfers 
under  rules  and  regulations  made  by  it,  subject  to  the  approval 
of  the  Director  of  Street  Railroads,  who  may  order  changes  and 
revisions  therein.  Such  rules  and  regulations,  including  the 
fixing  of  transfer  points  and  the  designation  of  transfer  routes, 
shall  become  effective  within  ten  days,  after  being  approved  by 
the  Director,  unless  the  Company  shall  file  objections,  in  which 
case  the  Director  shall  hold  a  public  hearing.  His  decision  after 
such  hearing  shall  be  final,  and  the  Company  shall  issue  transfers 
to  all  destinations  "on  each  and  all  of  the  routes  and  all  new, 
changed  and  extended  routes,"  as  the  Director  shall  decide. 
(Sec.  9.) 

Transfers  are  not  transferable  and  shall  be  used  within  five 
minutes  of  the  time  that  passenger  arrives  at  the  transfer  point. 
(Sec.  10.) 

Boston 
The  Trustees  were  required,  within  sixty  days  of  the  taking 
effect  of  the  Act,  to  put.  into  operation  rates  of  fare,  which  in 
their  opinion  were  sufficient  to  pay  the  cost  of  the  service,  and 
within  sixty  days  thereafter  to  adopt  a  schedule  of  eight  different 
grades  of  fare,  four  above  and  four  below  the  rate  first  established, 
and  to  at  all  times  keep  the  schedule  so  that  there  shall  be  four 


Service  At  Cost  Agreements 


207 


grades  above  and  four  below  the  rate  in  effect  at  the  time 
(Sec.  7.) 

The  Trustees  may  at  any  time  change  the  schedule  so  as  to 
alter  the  rates,  or  the  method  and  basis  of  charges  for  fares  and 
transfers.     (Sec.  7.) 

Massachusetts  (General) 

A  Company  accepting  the  Act,  files  with  the  Public  Service 
Commission  a  schedule  of  nine  different  grades  of  fares.  One 
of  these  it  shall  designate  as  the  initial  fare,  as  being,  in  its 
opinion,  sufficient  to  meet  the  then  cost  of  the  service.  Of  the 
remaining  fares,  four  shall  be  above  and  four  below  the  initial 
fare.  Each  fare  shall  be  so  fixed  in  relation  to  the  fare  above 
or  below,  as  to  provide,  so  far  as  possible,  for  an  increase  or 
decrease  of  thirty  per  cent,  in  the  (Reserve  Fund.  The  Com- 
mission shall  either  approve  the  schedule  so  filed,  or  shall  estab- 
lish a  schedule  of  its  own,  in  place  thereof.  If  by  reason  of 
changes  from  the  initial  fare,  there  shall  be  at  any  time  less 
than  four  fares  above  or  below  the  fare  effective,  then  the  Com- 
pany shall  file  an  additional  grade.  This  is  also  subject  to  the 
approval  of  the  Commission,  which  if  it  does  not  approve,  shall 
establish  a  grade  of  its  own.     (Sec.  6.) 

If  at  any  time,  the  interest  of  the  public  or  the  Company 
demands,  the  Company  may,  with  the  approval  of  the  Public 
Service  Commission,  change  the  schedule  of  fares  either  in  re- 
gard to  the  method  of  establishing  fares  and  transfers  privileges, 
or  in  regard  to  the  steps  between  the  different  grades,  or  in  other 
respects.     (Sec.  6.) 

"  Except  as  thus  provided,  the  Commission  shall  have  power 
to  modify  such  schedule  only  after  it  has  been  in  effect  for  a  period 
of  one  year;  provided,  however,  that  no  modification  of  the 
schedule  which  diminishes  the  rate  of  return  on  the  Stock  Invest- 
ment provided  for  in  Section  2  shall  be  continued  in  effect  for  a 
period  exceeding  four  months."     (Sec.  6.) 

Montreal 
No  schedules  of  fares  are  provided  for  in  the  Agreement.     The 
Commission  is  authorized  to  fix  fares  from  time  to  time  in  accord- 
ance with  the  provisions  of  the  agreement. 


fl 


208 


Service  At  Cost  Agreements 


For  this  purpose,  the  territory  is  divided  into  "Uniform- 
Tariff  Territory,"  comprised  of  the  City  as  it  existed  at  the  time 
of  the  taking  effect  of  the  Agreement,  six  towns  immediately 
adjacent  and  portions  of  two  parishes,  also  immediately  adjacent, 
and  "  Territory  Outside  Uniform  Tariff  Territory,"  comprising 
such  territory  lying  outside  of  Uniform-Tariff  Territory  as  is 
served  by  the  Company.     (Art.  76.) 

For  Uniform  Tariff  Territory,  the  Commission  must  establish 
and  maintain  uniform  rates.     (Art.  70.)     : 

For  territory  outside,  the  Commission  may  establish  different 
lariffs  for  different  municipalities  and  traffic  between,  it  being 
provided,  however,  that  such  tariffs  must  not  burden  the  rest 
of  the  system  and  that  any  municipality,  or  municipalities,  may 
assume  part  of  the  cost  of  service  for  the  sake  of  securing  low 
rates.     (Art.  76.) 

The  Commission  has  the  power  of  establishing  different  rates 
for  travel  at  certain  hours  of  the  morning  or  evening,  or  both, 
and  higher  fares  to  be  .charged  between  midnight  and  5  a.  m. 
(Art.  76.).  i  i,     . 

The  Commission  may  put  into  effect  reduced  rate  tickets  for 
school  children  and  apprentices  on  week  days,  but  for  school  chil- 
dren such  rates  will  apply  only  from  8  a.  m.  to  6  r.  m.,  and  for 
apprentices  from  6  a.  m.  to  7  p.  m.     (Art.  76.) 

Children  under  five  years  of  age  shall  be  carried  free. 
(Art.  76.) 

The  Company  is  compelled  to  sell  tickets  of  denominations 
fixed  by  the  Commission.     (.Art.  76.) 

When  a  new  tariff  becomes  effective,  tickets  sold  under  the  old 
tariff  are  not  usable,  but  must  be  redeemed  bv  the  Companv. 
(Art.  76.) 

Tariffs  become  effective  eight  days  after  publication,  for  two 
consecutive  days,  in  one  English  and  one  French  newspaper 
(Art.  76.) 

Tariffs  shall  provide  for  the  issue  of  transfers,  either  free  or 
at  a  charge  as  determined  by  the  Commission  (Art.  77),  under 
the  usual  restrictions,  and  it  is  forbidden  to  sell,  exchange  or 
give  away  a  transfer,  to  receive,  offer  or  'to  use  for  passage  a 
transfer  not  regularly  issued  to  the  holder,  or  to  throw  away  a 
transfer  without  first  having  destroyed  it.     (Art.  78.) 


Servjce  At  Cost  Agreements 


209 


No  other  persons,  than  the  policemen  and  firemen  of  the  City 
cr  of  any  municipality  served  by  the  Company,  members  and 
employees  of  the  Commission,  and  officers  and  employees  of  the 
Company  shall  be  carried  free.     (Arts.  79,  80.) 

The  Company  may,  with  the  approval  of  the  Commission,  con- 
tract with  the  Federal  Government  for  the  carriage  of  letter  car- 
riers and  mail,  and  with  the  Provincial  Government  for  the  trans- 
portation of  its  officers  and  for  service  to  and  from  the  Bordeaux 
jail.     (Art.  82.) 

Eastern  Massachusetts 
The  Trustees  are  required,  within  sixty  days  after  the  A^ew 
Company  has  acquired  the  property  of  the  Old  Company,  to  estab- 
lish rates  of  fare  which  in  their  opinion  will  provide  sufficient 
revenue  to  pay  the  cost  of  the  service,  and  thereafter  to  maintain 
flt  all  times  at  least  four  grades  of  fare,  two  of  which  shall  be 
above  and  two  of  which  shall  be  below  the  grade  in  effect. 
(Sec.  15.) 

Westerville 
Three  Fare  Zones  are  fixed  by  the  Grant.  In  addition,  there 
shall  be  established  by  the  Company,  with  the  approval  of  the 
Commissioners,  or  by  the  Commissioners,  with  the  approval  of 
the  Company,  overlapping  zones,  providing  that  the  establishment 
of  such  overlapping  zones  shall  not  jeopardize  the  interest 
on  the  Company's  investment.  If  the  Company  so  thinks,  it 
may  submit  the  question  to  arbitration.  If  the  decision  is  against 
its  contention  the  overlapping  zones  shall  be  immediately  estab- 
lished, but  the  Company  at  the  end  of  three  months  may  again 
protest  to  the  Commissioners  and  again  submit  the  question  to 
arbitration.      (Sec.  11.) 

The  fare  collected  in  any  zone  shall  be  for  a  single  ride  to  the 
end  of  that  zone.     (Sec.  11.) 

The  fare  for  all  zones  shall  at  all  times  be  equal.     (Sec.  11.) 
^  The  fare  for  the  part  of  the  trip,  south  of  I7th  Avenue  (on 
city  lines)   shall  always  be  the  same  as  the  city  fare  with  the 
same  transfer  privileges.     (Sec.  11.) 

The  following  schedule  of  rates  of  fare  by  ticket,  is  established 
in  the  grant: 

(a)  Four  tickets  for  10  cents,  or  2%-cent  fare. 

(b)  Five  tickets  for  15  cents,  or  3-cent  fare. 


,ij 


If 


210 


Service  At  Cost  Agreements 


(c)  Ten  tickets  for  35  cents,  or  3V^-cent  fare. 

(d)  Five  tickets  for  20  cents,  or  4-cent  fare. 

(e)  Ten  tickets  for  45  cents,  or  4V2-cent  fare. 

(f)  Five  tickets  for  25  cents,  or  5-cent  fare. 

(g)  Ten  tickets  for  55  cents,  or  514-cent  fare. 

(h)  Five  tickets  for  30  cents,  or  6-cent  fare.     (Sec.  12.) 

Each  ticket  sold  shall  be  good  for  one  continuous  ride  in  any 
one  zone.     (Sec.  12.) 

The  maximum  fare  in  any  one  zone  shall  be  six  cents.  (Sec. 
12.) 

When  the  ticket  fare  is  4  1-2  cents  or  less,  the  cash  fare  shall 
be  five  cents.  When  the  ticket  fare  is  more  than  4  1-2  cents,  the 
cash  fare  shall  be  six  cents.     (Sec.  12.) 

Commuters'  rates  may  be  established.     (Sec.  12.) 

Dallas 
Four  rates  of  fare  are  provided  by  the  Grant  as  follows: 

A.  Cash  fare,  five  cents,  22  tickets  for  $1 ; 

B.  Cash  fare,  five  cents,  six  tickets  for  25  cents ; 

C.  Cash  fare,  five  cents,  seven  tickets  for  25  cents; 

D.  Cash  fare,  five  cents,  eight  tickets  for  25  cents.     (Sec.  24.) 

When  Fare  A.  is  in  effect  tickets  shall  be  sold  at  the  Company's 
office  in  the  City  of  Dallas ;  when  any  of  the  other  specified  fares 
are  in  effect,  they  shall  be  sold  on  the  Company's  cars  as  well  as 
at  its  office.  The  manner,  time  and  place  of  selling  tickets,  may, 
however,  be  changed  by  agreement  between  the  Company  and  the 
Board  of  Commissioners ;   • 

Under  all  rates  of  fare,  children  under  five  years  of  age  shall 
be  carried  free; 

Children  not  more  than  twelve,  but  more  than  ^ve  years  of  age 
shall  be  carried  at  two  and  one-half  cents,  and  children's  tickets 
shall  be  sold  on  all  Company  cars ; 

Students  in  any  institution  of  learning  as  defined  by  the  laws 
of  Texas,  not  more  than  17  years  of  age,  shall  be  carried  at  two 
and  one-half  cents,  upon  tickets  purchased  at  Company's  office 
upon  presentation  of  certificates  of  indentification ; 


}  I 


Service  At  Cost  Agreements 


211 


Special  rates  for  charted  cars  and  special  service  may  be  made 
by  the  Company  with  the  approval  of  the  Board  of  Commission- 
ers; 

The  Company  is  obligated  to  give  universal  transfers,  under 
rules  and  regulations  made  by  it  and  approved  by  the  Board  of 
Commissioners,  which  shall  prevent  their  abuse ; 

If  at  any  time  territory  is  annexed  to  the  City,  and  the  Com- 
pany shall  operate  a  line  therein,  the  City  may,  in  accordance  with 
the  provisions  of  the  City  Charter,  establish  reasonable  fares, 
thereon,  which  in  no  event  shall  be  less  than  those  charged  in  the 
rest  of  the  city.     (Sec.  24.) 

Memphis 
The  following  schedule  of  rates  of  fare  is  provided: 
No.  1  —  Eight  cents  cash ; 

No.  2  —  Eight  cents  cash,  10  tickets  for  75  cents ; 
No.  3.  —  Seven  cents  cash ; 

No.  4  —  Seven  cents  cash,  10  tickets  for  65  cents ; 
No.  5  —  Six  cents  cash ; 

No.  6  —  Six  cents  cash,  10  tickets  for  55  cents^ 
No.  7  —  Five  cents  cash. 

Whenever  fare  Number  2  or  fare  Number  6  is  put  into  effect 
the  Commission  will  extend  the  list  of  fares  upwards  or  down- 
wards as  the  case  may  be  and  will  at  all  times  provide  in  the 
schedule  two  rates  of  faro  which  shall  be  below  or  above  that 
which  is  in  effect. 

Children  five  years  old  or  less  may  be  carried  free  when  accom- 
panied h)^  a  fare  paying  pa-ssenger.  Transfers  shall  be  given  in 
accordance  with  regulations  in  effect  at  the  time  the  ojder  took 
effect. 

The  initial  rate  of  fare  was  fixed  at  seven  cents,  10  tickets  for 
65  cents. 

Note. — ^At  the  instance  of  the  City  authorities,  the  Receivers  of  the  Com- 
pany consented,  with  the  approval  of  the  United  States  District  Court  having 
jurisdiction,  to  a  trial  period  of  three  months  from  April  1,  1920,  under  a 
six-cent  fare,  it  being  provided  that  if  insufficient  revenue  was  secured  under 
such  rate  then  at  the  end  of  the  three-month  period  the  fare  should  go  to 
seven  cents,  ten  tickets  for  sixty-five  cents,  and  if  at  the  end  of  the  next  three 
months  such  fare  provided  insufficient,  the  regulation  of  fares  under  the  terms 
of  the  order  should  proceed.  The  order  of  the  Commission  was  accordingly 
modified  to  this  extent. 


n 


11 


m 


II 


212 


2.— HOW  FIXED 


Service  At  Cost  Agreements 


I  ■' 


Cleveland 

The  rate  of  fare,  within  the  limitations  fixed  by  the  Grant,  is 
regulated  by  the  Condition  of  the  Interest  Fund,  except  when  the 
City  and  Company  agree,  or  a  Board  of  Arbitration  decides,  that 
the  fare  should  either  be  increased  or  decreased,  irrespective  of 
the  condition  of  the  Fund.     (Sec.  22.) 

The  Interest  Fund,  was  inaugurated  by  the  Company  provid- 
ing the  sum  of  $500,000,  made  by  the  terms  of  the  Grant  a  part 
of  Capital  value  and  maintained  separately  from  the  other  funds 
of  the  Company,  being  credited  with  such  interest  as  it  may  earn 
(Sec.  16  (b),  Sec.  18.) 

To  this  fund  is  credited  monthly  all  of  the  gross  receipts  of  the 
Company  remaining,  after  the  payment  of  the  Operating  Allow- 
ance and  the  Maintenance,  Renewals  and  Depreciation  Allowance. 
(Sec.  18.)     From  the  fund  shall  be  paid: 

Taxes ; 

Rentals ; 

Return  upon  Capital  Value; 

Federal,  State  and  Municipal  Assessments  against  the  stock  of 
the  Company; 

Expenses  of  Arbitration  in  excess  of  $5,000  for  any  six  months' 
period.     (Sees.  16,  17,  22.) 

Payments  from  the  Interest  Fund  for  return  upon  Capital 
Value  are  Cumulative,  and  shall  be  paid  without  any  deductions 
for  any  purpose.     (Sec.  17.) 

It  is  the  intention  of  the  Grant  to  keep  the  Interest  Fund  al- 
ways at  the  normal  sum  of  $500,000.  In  Determining  the 
amount  in  the  Fund  at  any  time,  the  accrued  obligations  for 
taxes  and  dividend  payments,  shall  be  proportioned  over  the  var- 
ious months  as  follows ; 

For  January,  seven  per  cent  of  the  total  payments ;  foi  Feb- 
rmij,  six;  for  March,  seven;  for  April,  eight;  for  May,  nine;  for 
June,  nine;  for  July,  ten;  for  August,  ten;  for  September,  nine; 
for  October,  nine;  for  November,  eight;  for  December,  eight. 
(Sec.  22.) 


Service  At  Cost  Agreements 


213 


If 


Whenever  the  amount  in  the  Interest  Fund,  less  the  propor- 
tionate accrued  payments  to  be  made  therefrom,  shall  be  less  than 
$250,000,  this  fact  shall  be  prima  facie  evidence  of  the  necessity 
of  raising  the  fare  to  the  next  highest  rate  provided  in  the  Sche- 
dule.    (See  F.l.) 

Whenever  the  amount  in  the  Interest  Fund,  less  the  proportion- 
ate accrued  payments  to  be  made  therefrom  shall  be  more  than 
$750,000,  this  fact  shall  be  prima  facie  evidence  of  the  necessity 
of  lowering  the  rate  of  fare  to  the  next  lowest  rate  named  in  the 
Schedule.    (See  F.  1.)    (Sec.  22.) 

YOUNGSTOWN 

The  rate  of  fare  in  effect  is  controlled  by  the  condition  of  the 
stabilizing  Fund.     (Sec.  14-C.) 

The  Stabilizing  Fund  was  inaugurated  by  the  Company's  pro^ 
vidmf^  the  sum  of  $100,000,  less  certain  stipulated  deductions  for 
expenses  m  connection  with  the  passage  of  the  Grant  This 
$100,000  is  charged  to  Capital  Value.  To  this  sum  is  added  the 
interest  received  thereon,  either  from  the  banks  in  which  it  is 
deposited,  or  the  securities  in  which  it  is  invested,  and  the  sum 
remaining  each  month  after  the  deduction  from  the  GVoss  Re- 
ceipts of  the  Company,  the  Operating  Allowance,  and  the  Main- 
tenance, Repair  and  Renewal  Allowance. 

From  it  shall  be  deducted  each  month  the  monthly  return  on 
Capital  Value  and  one-twelfth  of  the  estimated  yearly  taxes. 
(Sec.  13.) 

Also,  such  amounts  as  are  needed  to  make  up  deficits  in  Gross 
Revenue,  sufiicient  to  cover  the  Operating  Allowance  and  the 
Maintenance,  Repair  and  Renewal  Allowance.     (Sec.  11.) 

Also,  the  expenses  of  arbitration,  in  excess  of  $1,000,  for  any 
period  of  six  months.     (Sec.  9-B.) 

The  Initial  Rate  of  Fare  provided  in  the  Grant,  shall  remain 
effective,  until  at  the  end  of  any  calendar  month,  the  amount  in 
the  Stabilizing  Fund  shall  either  be  in  excess  of  $150,000,  or  less 
than  $50,000.  In  the  former  event  the  next  lowest  rate  of  fare 
shall  become  effective,  and  successive  lower  rates  shall  become 
effective  at  the  end  of  each  calendar  month,  until  the  amount  in 


tl  > 


^' 


214 


Service  At  Cost  Agreements 


the  Stabilizing  Fund  shall  be  below  $150,000,  in  which  event  the 
rate  then  in  effect  shall  remain  effective,  until  the  amount  in  the 
Fund  shall  be  less  than  $50,000,  or  more  than  $150,000,  a  lower 
or  a  higher  rate,  as  the  case  may  be,  shall  become  effective. 

In  the  latter  event,  the  rate  shall  be  successively  increased  at 
the  end  of  each  calendar  month  until  the  amount  in  the  stabiliz- 
ing fund  shall  be  in  excess  of  $150,000,  in  which  case  the  fare 
shall  be  decreased.  The  operation  of  the  Stabilizing  Fund  is 
thus  described  in  the  Grant: 

It  being  the  intent  of  these  provisions  that  by  a  regular  and 
orderly  monthly  decrease  of  fare  the  amount  in  the  Stabilizing 
Fund  shall  not  be  permitted  to  remain  above  $150,000,  and  by  a 
regular  and  orderly  monthly  increase  of  fare  the  amount  in  the 
Stabilizing  Fund  shall  not  be  permitted  to  remain  below  $50,000, 
and  it  being  the  further  intent  and  purpose  that  the  fare  in  effect 
at  the  time  said  Stabilizing  Fund  does  not  show  an  increase  over 
$150,000  shall  remain  in  effect  until  such  Stabilizing  Fund  is 
reduced  to  $50,000,  and  that  the  fare  in  effect  at  such  time  as  the 
Stabilizing  Fund  does  not  show  a  decrease  under  $50,00(>  shall 
remain  in  effect  until  the  Stabilizing  Account  shall  exceed  $150,- 
000.     (Sec.  14-C.) 

Free  transportation  is  limited  to  motormen,  conductors,  line- 
men, shopmen,  trackmen  going  to  or  returning  from  work,  and  all 
policemen,  firemen  and  sanitary  policemen  of  the  city.  (Sec. 
14-D.)  . 

Cincinnati 

The  rate  of  fare  in  effect  is  controlled  by  the  condition  of  the 
Reserve  Fund.  The  intention  of  the  Grant  is  to  establish  a  fund, 
consisting  of  $250,000,  contributed  by  the  Company  and  charged 
to  capital  account,  together  with  such  payments  from  Grosi  Earn- 
ings as  will  bring  it  up  to  $400,000,  which  amount  is  known  as 
the  "  l^ormal  "  condition  of  the  Fund.  Into  the  Reserve  Fund  is 
to  be  paid  all  surplus  remaining  after  the  payment  of  the  items 
set  forth  in  E-1  (Sec.  22  of  Grant),  and  from  it  is  to  be  paid  any 
amount  needed  to  make  up  any  deficiency  in  these  items,  which 
deficiency  is  cumulative  in  the  order  named  in  the  Grant.  (Sec. 
22-H.) 


t  I 


Service  At  Cost  Agreements 


215 


Two  provisions  are  made  for  the  regulation  of  fares,  as  fol- 
lows : 

Before  the  accumulation  of  the  Normal  Sum  of  the  Keserve 
Fund : 

If  at  any  time  the  Gross  Eeceipts  shall  not  be  sufficient  to  pay 
the  Items  named  in  Section  22  of  the  Grant,  together  with  any 
accruafs  of  such  expenses,  fares  shall  be  increased  in  accordance 
with  the  first  step  of  the  Fare  Schedule.  (F.  1 ;  Sec.  20  of  Grant.) 
If  at  the  end  of  the  next  two  months,  or  at  the  end  of  any  subse- 
quent period  of  two  months,  the  Gross  Receipts  shall  still  be 
insufficient  to  pay  such  items,  the  fare  shall  each  time  be  increased 
one  step  of  the  Fare  Schedule.  Such  Increases  shall  continue 
at  the  intervals  stated,  until  the  Gross  Receipts  shall  be  sufficient 
to  pay  the  aforesaid  items,  together  with  all  accruals  therein. 
(Sec.  22-H.) 

After  the  Accumulation  of  the  Normal  Sum  of  the  Reserve 
Fund: 

If  the  amount  in  the  Reserve  Fund  be  increased  to  $650,(»00  the 
next  lowest  fare  of  the  schedule  shall  be  put  in  force,  and  if 
at  the  end  of  the  first  two  months  thereafter,  or  at  the  end  of  anv 
subsequent  two  months,  there  shall  still  be  an  accumulation  in 
the  Reserve  Fund,  the  fare  shall  be  reduced  by  like  steps  in  the 
a  are  Schedule  until  such  accumulation  ceases.     (Sec.  22-H) 

If  the  amount  in  the  Reserve  Fund  be  decreased  to  $250  000 
then  the  next  highest  fare  in  the  Fare  Schedule  shall  be  put  in 
force,  and  if  at  the  end  of  the  next  two  calendar  months,  or  at  the 
end  of  any  two  calendar  months  thereafter,  the  Reserve  Fund  shaU 
be  still  further  reduced,  the  fare  shall  be  increased  by  like  suc- 
cessive steps  until  no  further  drafts  from  the  Reserve  Fund  for 
payments  on  account  of  the  items  mentioned,  or  accruals  thereof 
are  necessary.  (Sec.  22-H.)  ' 

Boston' 
The  Company  was  required,  before  the  act  took  eflFect,  to  provide 
the  sum  of  $1,000,000,  through  the  sale  of  its  preferred  stock 
to  be  used  as  a  Reserve  Fund.  (Sec.  5.)  This  fund  can  be  used 
only  for  making  good  any  deficiencies  in  cost  of  service  or  for 
reimbursing  the  Commonwealth  for  moneys  advanced  to  meet 
such  deficiencies.    (Sec.  8.) 


It 


216 


Service  At  Cost  Agreements 


1 4 


Into  the  fund  is  paid  any  surplus  remaining  after  the  cost  of 
service  is  paid  and  from  it  is  taken  any  amount  needed  tc  meet 
deficiencies  in  the  cost  of  service.     (Sec.  9.) 

If  at  the  termination  of  the  period  of  public  management  and 
operation,  the  Keserve  Fund  shall  contain  less  than  the  amount 
contributed  thereto  by  the  Company,  the  State  shall  pay  to  the 
Company  the  deficiency.  If,  on  the  other  hand,  there  is  a  surplus 
in  the  fund,  it  shall  become  the  property  of  the  State,  which 
shall  distribute  among  the  cities  and  towns  served  by  the  Company 
in  proportion  to  the  number  of  people  in  such  cities  and  towns 
using  the  Company's  service  at  the  date  of  the  termination  of  the 
perioii  of  public  management  and  operation.     (Sec.  13.) 

If  on  the  last  day  of  any  September,  December,  March,  or 
June,  the  amount  in  the  Reserve  Fund  shall  exceed  by  thirty 
per  cent,  the  amount  originally  established,  and  for  the  preceding 
three  months  income  shall  have  exceeded  the  cost  of  service,  the 
Trustees  are  required  to  put  into  eifect  the  next  lowest  rate  of 
fare  in  the  fare  schedule,  and  if  on  the  same  dates  the  amount  in 
the  fund  shall  be  less  than  seventy  per  cent,  of  the  original  sum, 
and  for  the  preceding  three  months  income  shall  have  been  less 
than  the  cost  service,  they  are  required  to  put  in  effect  the  next 
higher  fare.  In  like  manner  the  fare  shall  continue  to  be  increased 
or  decreased,  as  the  case  may  be,  on  succeeding  quarterly  dates. 
In  determining  the  state  of  the  Reserve  Fund,  money  received 
from  the  State  and  paid  thereinto,  and  for  which  the  State  has 
not  been  reimbursed,  shall  first  bs  deducted.     (Sec.  10.) 

Massachusetts  (General) 
Before  they  are  permitted  to  accept  the  Act,  Companies  are 
required  to  provide,  through  the  sale  of  bonds,  stock,  or  preferred 
stock,  a  Reserve  Fund  in  amount  not  less  than  six  per  cent.,  nor 
more  than  twelve  per  cent,  of  the  Company's  gross  earnings  for 
the  preceding  year;  the  amount  of  the  fund  to  be  paid  in  over 
a  period  not  exceeding  two  years,  as  the  Public  Service  Commis- 
sion may  direct.  The  fund  may  be  increased  with  the  consent  of 
the  Commission.  Until  it  is  used,  it  may  be  invested  in  the  bonds 
of  the  United  States,  Massachusetts,  or  any  city  or  town  thereof. 
(Sec.  3.) 


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Service  At  Cost  Agreements 


217 


The  Reserve  Fund  as  originally  provided  or  afterwards  in- 
creased is  considered  the  "  N^ormal  "  Reserve  Fund.     (Sec.  3.) 

Into  it  is  paid  any  surplus  remaining  after  the  cost  of  service 
has  been  paid,  and  from  it  shall  be  taken  any  deficit  in  the  cost 
of  service.    (Sees.  3,  5.) 

If  on  the  last  day  of  any  March,  June,  September  or  December, 
the  Reserve  Fund  shall  exceed  by  thirty  per  cent,  the  IN'ormal 
Reserve  Fund,  and  during  the  preceding  three  months,  income 
shall  have  exceeded  the  cost  of  service,  fares  shall  within  30  days, 
by  the  Company  be  reduced  to  the  next  lower  grade  below  the  fare 
then  in  effect.     (Sec.  7.) 

If  on  the  last  day  of  any  March,  June,  September,  or  December 
the  Reserve  Fund  shall  be  less  than  seventy  per  cent,  of  the 
Normal  Reserve  Fund,  and  during  the  preceding  three  months, 
the  income  shall  have  been  less  than  the  cost  of  service,  fares, 
shall,  within  30  days,  by  the  Company,  be  increased  to  the  next 
higher  grade  above  the  fare  then  in  effect.     (Sec.  7.) 

The  Company,  with  the  consent  of  the  Public  Service  Com- 
mission, may  put  into  effect  the  next  higher  or  lower  grade  of  fare 
at  any  time  when  the  Reserve  Fund  is  above  or  below  the  normal 
amount.     (Sec.  7.) 

Montreal 

A  Contingent  Fund  is  established  by  the  setting  aside  annually 
of  one  per  cent,  of  gross  revenues  until  $500,000,  is  accumulated, 
at  which  time  such  accumulation  shall  stop,  to  be  resumed  when- 
ever, by  reasons  of  payments  for  the  purpose  for  which  it  is  cre- 
ated, the  amount  in  the  Contingent  Fund  shall  be  below  $500,000. 
From  this  fund  is  taken  any  sum  necessary  to  meet  the  payments 
for  cost  of  service  as  enumerated  in  E-1,  when  Gross  Revenues 
are  insufficient,  payments  to  be  cumulative  and  in  the  order  named. 
(Art.  92;  Par.  5.) 

If,  in  the  judgment  of  the  Commission,  the  condition  of  the 
Fund  warrants  the  loan,  the  Company,  when  it  is  compelled  to 
furnish  new  capital,  must  first  borrow  from  this  Fund,  in  which 
case  the  return  of  six  per  cent  received  by  the  Company  for  the 
money  is  paid  into. the  fund.     (Art.  92 ;  Par.  3.) 

Upon  the  termination. of  the  Agi-eement,  the  Company  shall 
repay  any  money  so  borrowed,  and  the  Fund  shall  be  divided, 


I 


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219 


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30  per  cent  to  the  City,  20  per  cent  to  the  Company  and  50  per 
cent  to  the  Tolls  Reduction  Fund.     (Art.  92;  Par.  5.) 

A  Tolls  Reduction  Fund  is  established,  by  the  setting  aside 
of  fifty  per  cent  of  the  gross  revenue,  remaining  after  the  payment 
of  charges  enumerated  under  E-1,  and  the  one  per  cent  of  gross 
revenue  provided  for  the  Contingent  Fund.  When  the  Tolls 
Reduction  Fund  shall  exceed  $1,000,000,  the  Commission  may, 
and  when  it  shall  exceed  $2,500,000,  the  Conmiission  must, 
reduce  fares  on  the  system.  This  is  to  be  done  by  taking  from 
the  Tolls  Reduction  Fund  an  amount  equal  to  one-quarter  of  the 
total  amount  in  the  fund  at  the  end  of  the  year  preceding  that  in 
which  the  reduction  is  made,  and  adding  it  to  Gross  Revenue. 
Tolls  shall  thereupon  be  so  reduced  that  gross  revenue  earned 
shall  be  lessened  by  an  amount  equal  to  the  sum  paid  from  the 
Tolls  Reduction  Fund  into  gross  revenue,  but  not  so  as  to  prevent 
there  being  accumulated  in  Divisible  Surplus  an  amount  equal  to 
seventy-five  per  cent  of  that  accumulated  during  the  preceding 
year.  Annually  thereafter,  an  amount  equal  to  the  first  amount 
so  taken  shall  be  transferred  from  the  Tolls  Reduction  Fund 
to  Gross  Revenues,  until  the  amount  remaining  in  the  Tolls 
Reduction  Fund  shall  be  less  than  the  amount  taken,  when  such 
process  shall  cease.  Fares  shall  not,  however,  be  increased  until 
it  shall  become  necessary,  as  indicated  in  the  following  paragraphs. 
(Art  92;  Par.  6.) 

If,  in  spite  of  its  depletion,  under  the  process  described  above, 
the  Tolls  Reduction  Fund  shall  again  increase  until  it  shall  con- 
tain in  excess  of  $2,500,000,  there  shall  be  a  further  reduction  of 
tolls  made  in  the  same  manner.     (Art.  92;  Par.  6.) 

If  in  any  year  the  Gross  Revenues  are  insufficient  to  pay  the 
charges  enumerated  under  E-1,  together  with  the  one  per  cent  pro- 
vided for  the  Contingent  Fund,  and  if  that  Fund  be  at  the  time 
less  than  $300,000,  the  Commission  shall  transfer  from  the  Tolls 
Reduction  Fund  to  the  Contingent  Fund  a  suflficient  sum  to  bring 
it  up  to  $500,000,  including  the  payments  of  any  accumulated 
deficits  in  the  payments  enumerated  under  E-1,  or  if  there  be 
not  sufficient  money  in  the  Tolls  Reduction  Fund,  to  accomplish 
this  purpose,  then  the  fares  shall  be  immediately  increased  in 
order   to   provide    sufficient    revenues   to   make    the    payments 


enumerated  under  E-1,  together  with  the  one  per  cent  of  Gross 
Revenues  paid  to  the  Contingent  Fund.     (Art.  92;  Par.  6.) 

The  Tolls  Reduction  Fund  shall  be  held  in  trust  for  the  patrons 
of  the  Company  for  the  reduction  of  tolls  and  shall  be  admin- 
istered by  the  Commission  as  provided  in  the  Agreement.     (Art 
92;  Par.  6.) 

If,  in  the  judgment  of  the  Commission,  the  condition  of  the 
Fund  warrants  the  loan,  the  Company,  when  it  is  compelled  to 
furnish  new  capital,  must  first  borrow  from  this  fund,  in  which 
case  the  return  of  six  per  cent  received  by  the  Company  on  the 
money  is  paid  into  the  fund.     (Art.  92;  Par.  3.) 

At  the  termination  of  the  Agreement,  the  Tolls  Reduction  Fimd 
shaU  become  the  property  of  the  City,  and  the  City  shall  repay 
any  money  borrowed  therefrom  if  the  City  demands,  and  in  the 
event  that  moneys  are  still  due  from  the  Company  to  the  Fund 
it  be  deducted  from  the  purchase  price.     (Art.  92;  Par.  6.) 

Eastern  Massachusetts 
The  Act  provides  for  two  Fare  Districts,  the  first  consisting 
of  the  Company's  lines  north  of  Boston  and  the  second  of  its  lines 
south  of  Boston.     The  Trustees  are  further  authorized  to  create, 
after  hearings,  further  Fare  Districts,  within  the  two  major  divi- 
sions.   They  must  allocate  the  cost  of  the  service  as  between  these 
various  Fare  Districts,  on  a  basis  which  fairly  distributes  the  cost 
and  avoids  the  levying  upon  any  such  Fare  Districts  of  costs 
incurred  outside  thereof.    They  are  further  authorized  from  time 
to  time  after  hearings,  to  revise  the  boundaries  of  such  Districts. 
(Sec.  15.) 

During  the  war  and  for  two  years  thereafter  any  City  or  town, 
by  the  action  of  a  majority  of  its  electorate,  may,  for  the  purpose 
of  securing  lower  fares,  assume  all  or  any  part  of  the  difference 
in  the  cost  of  operation  due  to  increased  wages,  supplies,  or  coal, 
over  the  average  prevailing  .for  the  year  ending  July  1,  1914,  as 
determined  and  allocated  by  the  Trustees.  In  case  a  part  but 
not  all  of  tfie  cities  and  towns  in  a  Fare  District,  shall  decide  upon 
such  contribution,  the  Trustees  shall  make  such  readjustment  of 
fares  as  they  shall  consider  equitable  under  the  circumstances. 
No  town  may  contribute  for  any  one  year  an  amount  in  excess  of 


220 


Service  At  Cost  Agreements 


one  dollar  for  each  $1,000  of  its  preceding  year's  assessed  valu- 
ation, and  no  city  may  contribute  an  amount  in  excess  of  fifty 
cents  for  each  one  dollar  of  its  previous  year's  assessed  valuation. 
(Sec.  15.) 

From  the  $1,000,000  which  the  Act  provides  shall  be  paid  in 
for  new  securities  by  the  holders  of  the  securities  of  the  Old 
Company,  $500,000  is  set  aside  as  a  Reserve  Fund  (Sec.  8),  to 
be  used  only  for  the  purpose  of  making  good  any  temporary 
deficiency  in  income  pending  an  increase  of  fares.  (Sec.  16.) 
Pending  such  use,  the  fund  may  be  invested,  in  the  discretion  of 
the  Trustees,  in  income  producing  securities,  and  income  there- 
from received  shall  be  treated  as  a  part  of  the  general  income  of 
th)^  Company.  (Sec.  16.)  Any  surplus  remaining  in  the  revenue 
of  the  Company  after  the  full  cost  of  service  has  been  paid  shall 
be  credited  to  the  Reserve  Fund.  (Sec.  16.)  In  the  discretion 
of  the  Trustees,  the  Reserve  Fund  may  be  increased  from  time 
to  time,  by  the  sale  of  the  Company's  Stocks,  bonds  and  other  evi- 
dences of  indebtedness.    (Sec.  17.) 

If  on  the  last  day  of  any  December,  March,  June  or  September, 
the  amount  in  the  reser\^e  fund  shall  exceed  by  fifty  per  cent  the 
sum  of  $500,000,  plus  any  increase  made  in  the  fund  by  the 
Trustees  through  the  sale  of  the  Company's  securities  and  the 
income  of  the  Company  shall  have  exceeded  the  cost  of  the  service 
for  the  preceding  three  months,  the  Trustees  shall,  within  thirty 
days,  put  into  effect  a  lower  grade  of  fares.  If  at  the  same  periods 
the  reserve  fund  shall  be  less  than  half  the  sum  of  $500,000,  plus 
additions  made  by  the  sale  of  the  Company's  securities,  and  the 
cost  of  the  service  for  the  preceding  three  months  shall  have  been 
more  than  the  income  of  the  Company,  the  Trustees  shall,  within 
thirty  days,  put  into  effect  a  higher  grade  of  fares.  The  Trustees 
shall  continue  to  increase  or  decrease  fares,  thereafter,  in  accord- 
ance with  the  condition  of  the  Reserve  Fund,  as  stated  above. 
YSec.  17.) 

Westerville 

The  Rate  of  Fare  is  fixed  "by  the  condition  at  the  end  of  each 
month  of  Working  Capital.     (Sec.  12.) 

This  fund  is  established  by  the  provision  by  the  Company  of 
the  sum  of  $25-000   which  is  a  part  of  Capital  Value.    Into  the 


Service  At  Cost  Agreements 


221 


fund  is  paid  all  receipts  from  passenger  service,  and  all  propor- 
tional receipts  for  freight  originating  or  terminating  on  the 
Westerville  line,  as  well  as  other  receipts  arising  from  the  opera- 
tion of  this  line.  From  it  shall  be  paid  all  expenses  enumerated 
under  "  Cost  of  Service."     (See  E-1.)     (Sec.  13.) 

The  initial  fare  under  the  Grant  was  fixed  at  Grade  (d),  five 
tickets  for  20  cents,  4-cent  fare.  A  monthly  report  of  the  condi- 
tion of  Working  Capital  is  submitted  to  the  Commissioners  bv 
the  Company.  Upon  the  receipt  of  such  a  report  showing  that 
the  amount  in  Working  Capital  equals  or  exceeds  $35,000,  the 
Commissioners  shall  lower  the  fare.  If  the  report  so  filed  with 
the  Commissioners,  shows  that  Working  Capital  is  $15,000  or 
less,  the  Company  may  order  an  increase  in  fare.     (Sec.  12.) 

Dallas 

The  Grant  provides  that  whenever,  the  rate  of  return  permitted 
has  l)een  paid  and  the  Accident  Reserve  and  the  Repair,  Main- 
tenance and  Depreciation  Reserves  are  not  less  than  "normal," 
and  the  Surplus  Reserve  shall  exceed  "  normal "  by  fifty  per  cent., 
then  the  next  lowest  item  of  fare  provided  in  the  schedule  of 
fares  shall  be  put  in  effect.  If  at  the  end  of  six  months,  the 
return  having  been  paid  and  the  Accident  and  Repair,  Mainten- 
ance and  Depreciation  Reserves  being  at  not  less  than  "  normal," 
the  Surplus  Reserve,  still  exceeds  normal  by  at  least  thirty  per 
cent.,  then  the  fare  shall  be  further  reduced  to  the  next  rate  in 
the  schedule ;  and  fares  shall  be  reduced  at  six  months'  intervals, 
thereafter,  providing  rate  of  return  has  been  paid  and  the  Acci- 
dent and  Repair,  Maintenance  and  Depreciation  Reserves  are 
at  "  normal,"  until  the  Surplus  Reserve  shall  be  4ess  than  ten  per 
cent  in  excess  of  "normal."  The  return  provided  for  in  the 
Grant  is  cumulative  to  the  extent  that  fares  cannot  be  reduced 
until  arrears  in  return  have  been  made  up.     (Sec.  25.) 

Whenever  the  Surplus  Reserve  is  less  than  fifty  per  cent  of 
"  normal,"  the  Company  may  increase  its  fares  to  the  next  high- 
est rate  in  the  schedule  of  fares  provided  in  the  Grant,  and  if 
at  the  end  of  six  months  the  Surplus  Reserve  is  less  than  eightv 
per  cent  of. "  normal,"  it  may  put  the  next  highest  fare  in  eflFect, 
and  so  continue  to  increase  fares    (but,  for  rides  within  city 

15 


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Service  At  Cost  Agreements 


223 


limits,  not  higher  than  the  highest  rate  named  in  the  schedule) 
at  six-month  intervals  until  the  Surplus  Keserve  equals  ninety 
per  cent  of  "normal/'  after  which  it  may  not  again  increase 
fares,  until  the  Surplus  Eeserve  is  less  than  fifty  per  cent  of 
"normal";  except  that  where  the  Company,  after  protesting 
that  extensions,  or  service  ordered  by  the  Board  of  Commissioners 
will  jeopardize  its  ability  to  earn  its  stipulated  return  at  the 
maximum  fare,  has  been  ordered  by  a  Board  of  Arbitration  to 
make  such  extensions,  or  perform  such  service,  it  shall,  if  less 
than  the  maximum  fare  be  in  effect,  have  the  right  to  put  the 
maximum  fare  in  effect,  and  such  maximum  shall  not  be  reduced 
for  at  least  six  months  and  then  only  in  the  manner  provided  for 
other  reductions.     (Sec.  25.) 

Memphis 

All  revenues  of  the  Company  remaining  after  the  cost  of  the 
service  as  defined  by  the  Commission's  order  have  been  paid,  are 
placed  in  the  Fare  Index  Fund.  From  this  Fund  shall  be  paid 
all  deficits  as  between  revenue  and  the  cost  of  the  service. 

Whenever  on  January  1  or  July  1  of  any  year,  there  shall  be 
a  balance  in  the  Fund  in  excess  of  $200,000,  and  such  balance 
shall  have  been  increasing  during  the  preceding  two  months,  fares 
shall  be  reduced  to  the  rate  in  the  schedule  next  lower  to  that  in 
effect:  if  on  the  same  dates  the  balances  in  the  Fare  Index  Fund 
shall  be  less  than  $60,000,  and  such  balance  shall  have  been 
decreasing  during  the  preceding  two  months,  fares  shall  be 
increased  to  the  rate  in  the  schedule  next  higher  to  that  in  effect. 

In  the  event  that  the  balance  in  the  Fare  Index  Fund  continues 
to  increase  for  two  successive  months  after  a  decrease  in  the  rate 
of  fare,  or  continues  to  decrease  for  two  successive  months  after  an 
increase  in  fares,  then  the  Commission  may  put  into  eff'ect  an 
emergency  change  of  rate  without  waiting  for  the  succeeding 
regular  date  of  January  1  or  July  1. 


0.     TRANSPORTATION  OP  PREIGHT,  EXPRESS,  ETC. 

Cleveland 
!N^o  provisions. 

YOUNGSTOWN 

Permission  is  granted  to  carry  freight  upon  the  interurban  and 
suburban  cars  of  the  Company,  which  may  make  "reasonable 
charges"  therefor.  It  may  carry  mail  for  the  United  States 
Government.  It  may  operate  funeral,  observation  and  other  spe- 
cial cars  and  express  passenger  service,  the  rates  therefor  to  be 
fixed  by  agreement  with  the  City,  but  no  lower  than  the  rates 
provided  in  the  ordinance,  and  it  may  transport  such  supply  cars 
for  its  own  use  as  are  needed  in  the  maintenance,  construction 
and  operation  of  its  road.  Freight  cars  shall  be  of  a  type 
approved  by  the  City,  and  operated  at  such  times  of  the  day  and 
night  as  the  City  may  direct. 

Cincinnati 

The  language  of  the  Grant,  relative  to  the  transportation  of 
freight  and  express,  is  as  follows: 

"  If  and  when  the  Companies  may  be  authorized  by  law  so  to 
do,  they  may  transport  along  and  upon  the  routes,  and  all  new, 
additional,  changed  and  extended  routes,  freight,  express  matter 
and  packages,  and  charge  and  collect,  from  time  to  time,  reason- 
able rates  therefor,  but  such  transportation  shall  not  be  permitted 
to  interfere  with  or  delay  passenger  traflic.     (Sec.  20.)'' 

The  Company  is  required  to  file  a  schedule  of  rates  for  freight 
and  express  service  with  the  Director  of  Street  Railroads,  and 
may  change  such  schedule  from  time  to  time,  filing  new  schedules. 
Schedules  become  effective  30  days  after  the  date  of  filing,  except 
that  the  Director  may,  for  good  cause,  allow  them  to  become 
effective  sooner.  When  objection  is  made  by  any  person  or  persons 
to  the  Company's  schedule,  the  Director  shall  upon  notice  to  the 
Company  hold  a  public  hearing,  and  shall  decide  thereafter  the 
charges  to  be  made.  The  charges  so  fixed  shall  be  binding  upon 
the  Company,  at  the  end  of  thirty  days,  unless  within  that  period 


1 

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225 


^  t 


the  Company  shall  begin  in  a  court  of  com|)etent  jurisdiction  pro- 
ceedings to  enjoin  such  charges  on  the  ground  that  they  are  un- 
reasonable.    (Sec.  20.) 

Boston 

Ko  provisions  are  made  for  the  transportation  of  freight, 
express,  etc.,  such  matters  being  under  the  jurisdiction  of  the 
Trustees.     (Sec.  2.) 

Massachusetts  (General) 
No  provisions. 

Hontreai. 

"  The  Commission  may  allow  the  Company  to  carry  freight 
over  all  or  any  part  of  the  territory  of  the  City  as  it  now  exists 
f»Jid  as  it  may  hereafter  be  enlarged,  as  well  as  over  all  or  any 
part  of  the  territory  outside  of  the  City,  provided  that  such 
transportation  of  freight  shall  not,  in  any  way,  interfere  with  nor 
hinder  the  transportation  of  passengers,  or  the  carrying  out  of 
any  work,  or  the  transportation  of  garbage,  waste,  rubbish  or 
snow,  which  the  Company  may  be  called  upon  to  undertake  for 
the  City  under  the  present  contract."    (Art.  83.) 

If  permission  to  carry  freight  is  granted,  the  Commission  shall 
determine  the  routes  on  which  freight  shall  be  transported,  specify 
the  hours  during  which  freight  cars  shall  run,  fix  the  tariffs,  so 
that  they  shall  not  burden  the  passenger  tariff,  establish  rules  for 
the  transportation  of  freight,  which  when  approved  by  the  Que- 
bec Public  Utilities  Commission  shall  be  binding,  determine  the 
commodities  which  may  be  transported  and  order  the  establish- 
ment of  loading  and  unloading  places.     (Art.  83.) 

The  transportation  of  live  stock,  carrion  or  manure  or  other 
offensive  substances  can  be  effected  only  in  cars  approved  by  the 
Board  of  Health  of  the  Province  of  Quebec.     (Art.  83.) 

The  Company  is  granted  the  right,  irrespective  of  the  Com- 
mission, to  transport  for  itself  or  for  the  City,  material  used  in 
the  construction  of  its  lines,  or  for  construction  work  being  done 
by  the  City  or  any  municipality  served,  including  surplu?  from 
excavations  made  in  the  pursuance  of  such  work.     (Art.  83.) 

The  Commission  may  not  authorize  the  Company  to  permit  its 
freight  car&  to  remain  stationary  in  the  streets  for  the  purpose  of 


unloading  or  loading,  except  when  used  in  the  work  of  the  Com- 
pany, City,  or  any  municipality  served  by  the  Company.  (Art. 
83.) 

Eastern  Massachusetts 
Ko  special  provision  is  made  for  the  transportation  of  freight, 
express,  etc.,  the  matter  being  within  the  jurisdiction  of  the 
Trustees  and  the  Public  Service  Commission. 

Westervillb 

There  are  no  provision?  as  to  the  transportation  of  freight  and 
express,  except  that  receipts  from  freight  originating  or  termi- 
nating on  the  Westerville  line,  shall  be  credited  to  Working  Capi- 
tal.    (Sec.  13.) 

Dallas 

"  No  cars  for  the  carriage  of  freight  or  express  (other  than 
for  the  use  of  the  Grantee)  shall  be  operated  by  the  Grantee  over 
any  part  of  its  system,  unless  formal  consent  be  given  by  the 
City  by  resolution  or  ordinance  of  the  Board  of  Commissioners. 
Such  resolution  or  ordinance  may  provide  such  regulations  relat- 
ing thereto  as  the  Board  of  Commissioners  may  deem  necessary." 
(Sec.  32.) 

Memphis 

No  provisions. 

H.    SPECIAL  PROVISIONS 

When  Grant  Expires: 

Boston 

• 

When  the  period  of  public  management  and  operation  expires, 
the  Company  is  given  the  right  to  fix  its  own  fares,  so  as  to  pro- 
vide for  the  cost  of  service,  including  a  six  per  cent,  return  upon 
the  par  value  of  its  common  stock  outstanding,  and  may  establish 
an  automatic  scale  of  fares,  but  the  Commonwealth  is  released 
from  its  obligation  to  make  up  deficiencies  in  the  cost  of  service. 
The  Company  shall  under  such  conditions  be  subject  to  such  reg- 
ulation as!  the  Legislature  may  decide  upon,  but  such  regulation 
shall  not  be  exercised  so  as  to  reduce  its  income  below  the  rea- 
sonable cost  of  the  service  as  defined  in  the  Act.    (Sec.  15.)    But 


III 


226 


I 


Service  At  Cost  Agreements 


I  /I 


I  i 


is 


,*1  t 


:l| 


this  provision  is  declared  not  to  be  a  contract  binding  upon  the 
Commonwealth.     (Sec.  18.) 

Massachusetts  (General) 
Acceptance  of  Act: 

A  Company  desiring  to  accept  the  Act,  applies  to  the  Public 
Service  Commission,  for  a  determination  of  its  Capital  Invest- 
ment, and  the  approval  of  its  unfunded  debt.  Upon  the  determi- 
nat'on  of  Capital  Investment  and  approval  of  unfunded  debt, 
the  Act  may  be  accepted  by  the  filing  with  the  Commission,  an 
acceptance,  authorized  by  a  vote  of  at  least  a  majority  of  its  capi- 
tal  stock,  and  evidence  that  the  Reserve  Fund  and  Improvement' 
l?und  has  been  raised  or  will  be  raised.     (Sees.  4,  12.) 

The  Public  Service  Commission  may  permit  \  Company  to 
hogin  operation  under  the  Act  before  its  Capital  Investment  has 
been  determined,  provided  the  other  provisions  of  the  Act  have 
been  complied  with,  but  there  shall  be  no  distribution  of  dividends 
on  common  stock,  until  such  detennination  of  Capital  investment 
has  been  made.     (Sec.  12.) 

Montreal 
Control  Outside  City: 

The  present  agreement  annulled  the  privileges,  rights  and 
franchises  which  the  Company  held  in  the  City,  and  ''the 
privileges,  rights  and  franchises  which  it  possesses  or  will  possess 
in  other  territories  for  the  same  purpose  shall  be  annulled  by  the 
mere  fact  of  the  annexation  of  such  territories  to  the  City,  which 
territories  shall  then  be  subject  to  the  present  contract." '  (Art 
24.)  ^ 

"All  provisions  of  the  contracts,  compacts  or  agreements  passed 
between  the  Company  and  any  municipal  corporation  outside  of 
the  City,  inconsistent  with  the  provisions  of  this  contract,  shall  be 
and  shall  remain  without  effect  from  the  coming  into  force  of  the 
present  contract."     (Art.  95.) 

In  specific  provisions,  the  Commission  is  given  control  of  fare?, 
w^rvice,  betterments,  extensions  and  improvements  outside  of  City! 


Service  At  Cost  Agreements 


227 


Gvarantee  Fund: 

Within  five  yeiars  after  the  coming  into  effect  of  the  agreement, 
the  Company  is  compelled  to  provide  out  of  its  own  resources,  by 
which  is  meant  those  outside  the  jurisdiction  of  the  Commission, 
the  sum  of  $500,000  in  yearly  installments  of  not  less  than 
$100,000,  the  total  to  be  known  as  the  guarantee  fund.  This 
is-  to  be  used  to  meet  all  liabilities  and  debts,  other  than  mortgage 
debts,  incurred  by  the  Company  before  the  agreement  took  effect, 
to  pay  for  any  excess  in  expenditures  over  1021/^  per  cent,  of  the 
operating  allowance,  when  required  by  the  Commission;  to  pay 
imy  penalties  inflicted  upon  the  Company  for  failure  to  conform 
with  the  Commission's  orders  and  to  guarantee  the  fulfillment  of 
the  terms  of  the  agreement.  The  fund  is  at  all  times  to  be  main- 
tained by  the  Company  at  $500,000,  and  shall  be  deposited  in 
some  bank  or  chartered  trust  company,  so  as  to  be  readily  avail- 
sble.  The  interest  on  the  fund  is  the  property  of  the  Company, 
nnd  at  the  termination  of  the  agreement  the  amount  in  such  fund 
shall  be  the  property  of  the  Company.     (Art.  92.) 

Labor: 

"The  C Company  shall  not,  directly  or  through  any  other  person, 
do  anything  to  prevent  its  employes  from  organizing  a  labor  union 
authorized  by  law.  Each  class  or  category  of  employes  may  form 
a  separate  union.     (Art.  88.) 

"  The  employes  of  the  Company  shall  be  entitled  to  one  day's 
rest  per  week,  the  same  to  be  fixed  by  the  regulations  of  the  Com- 
pany."    (Art.  88.) 

Eastern  Massachusetts 

At  Expiration  of  Public;  Management: 

"After  the  expiration  of  the  ten-year  period  of  management  and 
operation  of  Trustees  as  herein  provided  for,  the  New  Company 
shall  have  all  the  powers  and  privileges  and  be  subject  to  all  thb 
liabilities  and  restrictions  of  a  street  railway  organized  under  the 
general  laws  now  or  hereafter  in  force,  and  with  the  consent  of 
the  Public  Service  Commission,  may  exercise  any  additional 
powers  and  privileges  conferred  by  special  acts  applicable  to  the 
Bay  State  Street  Eailway  Company,  until  the  General  Court  shall 
othervN'ise  provide."     (Sec.  18.) 


nil 


I" 


228 


Service  At  Cost  Agreemen 


TS 


I 


r 

•i 


Apportionment  of  Stock  and  Bonds: 
The  general  laws  of  Massachusetts  provide  that  a  street  rail- 

stock.     In  the  case  of  the  special  issue  of  serial  bonds,  authorized 
by  the  Act,  and  ,n  the  case  of  equipment,  notes,  payable  serially 

^ond  Discmini: 

c^^^V""^"^""  ?'  *^'  '"'"  "f  ^""^  «*  «  'J'^^"""*.  «««*  diB- 
mm    to  be  amortized  as  the  Trustees,  with  the  approval  of  the 

dial!  be  deducted  from  the  amount  of  bonds  outstanding  for  the 
purpose  of  detennining  the  proportion  between  bonds  and  stock, 

otitr   n  '^'  ^r"'  '"^'  "^  Massachusettes,  must,  in  the  case 
of  street  railways,  be  equal.     (Sec.  7.) 

Hemphis 
Traffic;  Survey: 

The  Company  is  directed,  if  the  city  of  Memphis  so  elects  to 
co^rate  m  the  making  of  a  traffic  survey,  the  cost  of  which  is 
to  be  borne,  on^half  by  the  city  and  one-half  as  a  cost  of  the  ser- 
vice. The  purpose  of  such  survey  is  to  determine  if  service  can  be 
improved  and  its  cost  lessened  and  the  report  is  to  be  submitted  to 
the^omm,ss,on  for  such  action  as  it  may  decide  to  take  in  relation 

Skip-stop: 

r;f"^'T!.*V''  niodifications  as  may  be  agreed  upon  by  the 
City  and  the  Company,  the  order  directs  that  the  skip-stop  plan  in 
force  previous  to  the  making  of  the  order  be  continued 


SERVICE  AT  COST  PLANS  NOT  IN  EFFECT 


An  ldent.^1  Analysis  of  Ordinances  and  Agreements  which 
Have  Been  Proposed  in  the  Cities  of  Chicago,  Phila- 
delphia, Denver  and  Minneapolis,  but  which  for 
Various  Reasons  Have  Not  Became  Operative. 

In  addition  to  the  cost  of  service  agreements  at  preset  effec- 
tive m  ten  cities  of  the  United  States  and  Canada,  similar  agree- 
ments have  been  prepared  to  cover  the  operation  of  electric  rail- 
way systems  in  several  other  cities,  but  for  various  reasons  have 
not  been  put  into  effect. 

Agreements  proposed  in  Chicago,  Philadelphia,  Minneapolis 
and  Denver  are  analysed  a^d  summarized  in  the  following  pages 

The  object  of  the  Chicago  ordinance  was  to  provide  for  Theln- 
struction  by  the  City  of  a  subway  system,  the  consolidation  of  the 
surface  and  elevated  lines  into  a  unified  system  and  the  operation 
of  all  local  transportation  lines,  including  the  Citv^wned  sub- 
ways by  a  single  company,  organized  for  that  pur'pose  and  not 

rf.  l^r'^^f  P'"*^*"  "'  "^  "^J^*-  The  Ordinance  was 
adopted  by  the  Chicago  City  Council  on  August  14,  1918  by  a 
vote  of  48  to  20  and  was  vetoed  by  Mayor  Thompson  a  few  dlys 
later.  On  August  22,  1918,  it  was  respassed  over  the  Mayoi 
vetoe  by  a  vote  of  51  to  19.  It  was  submitted  to  a  vote  of  the 
people  on  November  5,  1918,  and  defeated.  Opponents  of  the 
ordmance  were  recruited  from  public  ownership  advocates,  from 
those  who  favored  extension  of  elevated  lines  rather  than  the 
building  of  subways,  as  well  as  those  who  believed  that  the  Initial 
Value  of  the  property  wa^  too  high  and  that  the  rate  of  return 
was  too  great.  The  cry  that  the  adoption  of  the  ordinance  would 
mean  an  immediate  increase  in  fares  was  also  raised 

The  Philadelphia  ordinance  which  aimed  to  provide  a  unified 

^stem  of  local  transportation  for  the  City  of  Philadelphia,  and 

ts  operation  by  the  Philadelphia  Rapid  Transit  Companv,  wa, 

supplementary  to  a  contract  entered  into  between  the  Ciiy  and 

[229J 


230 


Service  At  Cost  Agrxements 


Service  At  Cost  Agreements 


the  Company  in  1907.  It  provided  for  the  construction  of  tran- 
sit facilities  both  by  the  City  and  the  Company  and  the  furnishing 
of  equipment  for  both  City  and  Company  lines  by  the  Company. 
It  was  adopted  by  the  City  Councils  and  approved  by  the  Mayor 
on  January  3,  1918.  Approval  by  the  Pennsylvania  Public  Serv- 
ice Commission  was,  however,  necessary  before  the  contract 
became  effective.  On  January  15,  1919,  the  Public  Service  Com- 
mission disapproved  the  contract,  mainly  on  the  gi'ound  that  it 
established  a  fare  basis,  and  conceded  certain  preferentials  to 
the  Company,  without  a  valuation  of  its  property. 

The  Denver  Service  at  Cost  ordinance  was  drafted  by  a  Com- 
mittee of  fifty-five,  appointed  by  Mayor  Mills  in  January,  1919, 
and  representing  all  of  the  business,  civic  and  labor  organizations 
of  the  City.  The  appointment  of  the  Committee  was  inspiied  by 
the  desire  to  secure  a  satisfactory  plan  for  determining  rates  and 
service,  after  the  Colorado  Public  Utilities  Commission  had 
granted  the  Company  a  seven-cent  fare  as  an  emergency  measure. 
A  few  days  after  the  Committee  was  named  the  Colorado 
Supreme  Court  handed  down  a  decision  denying  the  Commission 
jurisdiction  over  the  rates  or  service  of  public  utilities  in  so-called 
"  Home  Kule  "  cities,  of  which  Denver  is  one.  The  City  Coun- 
cil, afterwards  permitted  the  Company  to  charge  a  six-cent  fare, 
which  was  insufficient  and  owing  to  wage  awards  made  by  the 
National  War  Labor  Board  an  acute  situation  was  presented. 
On  August  22,  1919,  the  Committee  of  Fifty-five  filed  with  the 
City  a  petition  embodying  the  Ordinance,  with  the  signatures  of 
16,150  citizens.  The  ordinance  was  passed  by  the  Council  and 
submitted  to  a  vote  of  the  people  on  October  22,  1919,  when  it 
was  defeated  by  235  votes  in  a  total  of  21,245. 

At  the  same  election,  the  Denver  Elastic  Six-cent  Fare  Ordin- 
ance, proposed  by  City  Auditor  Stackpole,  which  aimed  to  base 
fares  upon  the  wages  paid  to  its  employes  by  the  Company  was 
defeated  by  6,304  votes  out  of  a  total  of  15,461.  Some  100,000 
were  entitled  to  vote  on  these  two  propositions  and  the  small  vote 
recorded  may  be  taken  as  indicative  of  the  lack  of  interest  mani- 
fested by  the  ordinary  citizen  in  matters  of  the  kind. 

The  Minneapolis  Ordinance  was  an  attempt  to  adjust  transit 
conditions  in  Minneapolis  in  advance  of  the  expiration  of  some 


231 


of  the  Company's  franchises.  It  was  fathered  by  the  Street  EaU- 
way  Committee  of  the  City  Council  and  prepared  by  City  Attor- 
ney C.  D.  Gould  and  Stiles  P.  Jones.  It  was  passed  by  the  City 
Council  in  September,  1919,  and  submitted  to  the  voters  on 
December  9,  1919,  when  it  was  defeated  by  a  vote  of  22,977  for 
and  30,549  against.  The  opposition  to  the  ordinance  was  led  by 
Mayor  Meyers  and  the  Socialist  party.  The  Mayor  announced 
himself  in  favor  of  service  at  cost,  but  disagreed  with  the  valua- 
tion placed  upon  the  Company's  property,  although  this  valuation 
was  based  on  the  estimates  of  the  City  Engineer. 


1.—  LIFE 


A.   GENERAL  CONDITIONS 


Chicago 

The  Grant  expires  only  when  the  property  of  the  Company  is 
purchased  by  the  City. 

Philadelphia 
The  Grant  continues  until  July  1,  1957,  unless  — 
Terminated  by  the  City  on  account  of  default  by  the  Company. 
Terminated  by  reason  of  the  purchase  by  the  City  of  the  prop- 
erty of  the  Company.    (Art.  37. ) 

Denver  Service  at  Cost  Ordinance 
The  Denver  Ordinance  was  neither  a  Grant  nor  a  Franchise.  It 
was  an  ordinance  giving  the  City  certain  control  over  the  service 
of  the  Company  and  prescribing  a  method  for  fixing  fares.  By 
Its  provisions  it  was  declared  to  be  binding  upon  both  the  City 
and  the  Company  "  for  the  remaining  life  of  any  of  the  Com- 
pany's  franchises,"     (Art.  17.) 

Denver  Elastic   Six-cent  Fare  Ordinance 
For  the  remaining  life  of  the  Company's  franchises.     (Sec.  5.) 

Minneapolis 
Twenty-five  years  from  January  1,  1920.     (Sec.  2.) 


232 


Sebvice  At  Cost  Agreements 


n 


S.— RENEWAL 

Chicago 
No  provisions. 

Philadelphia 
Upon  sLx  months'  notice,  prior  to  the  date  of  expiration,  the 
City  may  renew  the  Grant  as  well  as  the  1907  Contract  to  which 
it  is  supplementary,  for  a  ten-year  period  and  may  again  renew 
it  for  a  like  period  prior  to  the  termination  of  any  such  exten- 
sions, by  giving  six  months'  notice.     (Art.  38.) 

Denver  Service  at  Cost  Ordinance 
No  provisions. 

Denver  Elastic   Six-cent  Fare  Ordinance 

No  provisions. 

Minneapolis 

There  are  no  specific  provisions  covering  the  renewal  of  the 
Orant.  The  power  to  renew  the  Grant  rests  in  the  City  Council, 
however.  The  Company  is  required  by  the  terms  of  the  Grant 
to  continue  to  operate  its  City  System  after  the  Grant  has  expired 
under  such  reasonable  terms  and  conditions  as  the  City  Council 
may  impose.  Such  continued  operation  does  not  extend  or  renew 
the  Grant,  but  the  obligation  of  the  Company  to  sell  to  the  City 
at  any  five-year  period  is  continued.     (Sec.  2.) 

8.>-F0SF£ITUS£ 

Chicago 
No  provisions. 

Philadelphia 

If  the  Company  defaults  in  performing  its  obligations  under 
the  Grant,  the  Citv  mav  — 

Operate  the  Unified  System  under  rates  of  fare  provided  by 
the  Grant  for  the  remainder  of  the  life  of  the  Grant  on  such 
terms  as  may  be  decided  by  the  Court,  such  operation  to  be  under 
the  terms  of  the  Contract,  and  by  orders  of  the  Court  pending  a 
determination  of  the  rights  of  the  parties  or  the  curing  of  the 
default,  and  the  property  shall  be  restored  to  the  Company  as  soon 
as  the  default  shall  have  been  cured  or  the  Court  shall  so  order ;  or 


Service  At  Cost  Agreements 


233 


Enter  into  a  contract  with  some  third  party  to  operate  the  Uni- 
ded  System,  subject  to  the  same  conditions,  as  if  operated  by  the 
City;  or 

Apply  for  the  appointment  of  a  receiver  to  operate  the  Unified 
System  and  at  the  same  time  ask  for  an  order  of  the  Court  to 
protect  the  rights  of  the  parties  to  the  Grant ;  or 

Apply  for  a  cancellation  of  the  Grant  and  the  lease  which  is 
a  part  thereof;  or 

Avail  itself  of  such  other  remedies  as  may  be  legally  possible. 

Any  of  these  actions  shall  not  invalidate*^  the  lien  of  bonds  or 
other  securities  which  the  Company  may  have  issued  under  the 
terms  of  the  Grant.     (Art.  30. ) 

Denver  Serice  at  Cost  Ordinance 
No  provisions.     The  instrument  if  merely  a  rate  regulation 
would  presumably  be  revocable  at  the  pleasure  of  the  City  Council. 

Denver  Elastic   Six-cent  Fare   Ordinance 
No  provisions.     The  instrument  if  merely  a  rate  regulation 
would  presumably  be  revocable  at  the  pleasure  of  the  City  Council. 

Minneapolis 
If  the  Company  shall  fail  to  comply  with  any  of  the  terms  and 
conditions  of  the  Grant,  and  if  such  default  shall  continue  for 
a  period  of  ninety  days  (exclusive  of  all  times  during  which  the 
Company  may  be  delayed  or  interfered  with,  without  its  con- 
nivance, by  unavoidable  accidents,  strikes  or  court  actions)  after 
written  notice  of  such  default  has  been  served  upon  it  by  the 
City,  then  the  City  Council  may  declare  the  Grant  forfeited.    In 
case,  however,  there  shall  be  outstanding  bonds  issued  in  com- 
pliance  with  the  provisions  of  the  Grant  secured  by  a  lien  against 
the  property  of  the  Company  including  the  rights  and  privileges 
granted  by  the  ordinance,  the  owners  thereof  shall  be  privileged 
to  foreclose  on  the  property,  including  such  rights  and  privileges. 
The  purchasers  at  such  foreclosure  sale  shall  be  entitled  to  con- 
tinue the  operation  of  the  property  under  the  terms  of  the  Grant 
including  the  right  of  the  City  to  purchase  and  to  forfeit  the 
Grant  for  failure  to  comply  with  its  terms,  which  forfeiture  shall 


ii  " 


I 


234 


Service  At  Cost  Agreements 


^1 


be  conclusive  and  shall  terminate  the  rights  and  privileges  of  the 
purchaser  thereunder  as  well  as  those  of  parties  claiming  there- 
under. If  the  Company  is  unable  to  comply  with  the  terms  of 
the  Grant  for  reasons  beyond  its  control  such  as  acts  of  God, 
strikes,  war,  riots  or  inability  to  obtain  materials  and  supplies 
within  the  time  specified,  "  if  all  reasonable  diligence  is  exercised 
in  ordering  and  purchasing  the  same,"  it  is  relieved  of  obligations 
under  the  Grant  as  to  time  of  performance.     (Sec.  32.) 

B.  MUNICIPAL  PURCHASE 


1.— BY  THE  CITY 


If 


I 


N 


^i|> 


I 


(a)  When  Purchase  Can  Be  Made 

Chicago 
On  the  first  day  of  January,  or  the  first  day  of  July  of  any 
year  after  the  Grant  becomes  effective,  upon  giving  six  months' 
notice  in  writing  of  intention  to  purchase.     (Sec.  24.) 

Philadelphia 

Under  the  1907  Contract  upon  July  1,  1957,  or  upon  any  July 
1,  thereafter,  provided  that  six  months'  notice  be  given  to  the 
Company.    (Sec.  11,  1907  Contract;  Sec.  37  of  Grant.) 

Under  the  additional  rights  conferred  by  the  Grant,  at  any  time 
after  July  1,  1927,  upon  six  months'  notice  to  the  Company  of 
its  intention  to  purchase.  (  Art^  27.)  * 

Denver  Service  at  Cost  Ordinance 
At  any  time  after  the  taking  effect  of  the  ordinance  upon  six 
months'  notice  to  the  Company.     (Art.  12;  Sec.  1.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
Ko  provisions. 

Minneapolis 
During  the  life  of  the  Grant,  any  extension  thereof,  or  any  con- 
tinued operation  of  the  system  under  the  terms  of  the  Grant,  but 


Service  At  Cost  Agreements 


235 


without  an  extension  thereof,  the  City  shall,  upon  giving  one 
year's  notice  in  writing  of  its  intention,  have  the  right  to  purchase 
at  the  end  of  each  five  or  ten-year  period.     (Sees.  2  and  18.) 

During  the  life  of  the  Grant  and  any  extension  thereof  the 
City  shall  have  the  right  to  purchase  on  January  1,  of  any  year, 
providing  that  it  has  given  the  Company  one  year's  notice  of  its 
intention  so  to  do.     (Sec.  18.) 

Under  its  right  of  eminent  domain,  the  City  shall  have  power 
to  purchase  at  any  time.     (Sec.  18.) 

(b)  Terms  of  Purchase 

Chicago 

The  purchase  shall  include  all  property  of  the  Company,  includ- 
ing money  and  securities  in  the  Special  Funds  created  by  the 
Grant,  all  receipts  of  the  system,  including  amounts  reserved  for 
taxes  and  other  operating  expenses,  less  any  amount  needed  to 
pay  the  items  constituting  Cost  of  the  Service.     (Sec.  24.) 

The  purchase  price  shall  be  the  amount  of  the  then  Capital 
Account  of  the  Company,  less  the  amount  of  any  outstanding  and 
unpaid  liens  (except  liens  then  callable,  which  shall  be  called  and 
paid  by  the  Company)  subject  to  which  the  Company  acquired 
the  property,  franchises  and  rights  of  the  surface  or  elevated  lines 
which  comprise  the  system,  which  liens  shall  be  assumed  by  the 
city.     (Sec.  24.) 

Upon  the  payment  in  cash  to  the  Company,  or  the  deposit  of 
the  purchase  price  in  cash  in  the  depositories  named  in  the  Grant, 
the  City  shall  have  the  right  to  take  over  and  possess  the  property. 
Liens  under  mortgages,  deeds  of  trust  or  other  instruments,  made 
subsequent  to  the  taking  effect  of  the  Grant,  and  rights  of  the 
holders  of  debentures  or  other  obligations  issued  in  part  payment 
for  the  surface  or  elevated  lines  comprising  the  property,  shall  be 
paid  out  of  such  purchase  price,  such  debentures  or  other  obliga- 
tion being  subject  to  the  lien  of  the  aforesaid  mortgages,  deeds  of 
trust  or  other  instruments.     (Sec.  24.) 

Philadelphia 
The  property,  leaseholds  and  franchises  of  the  Company,  sub- 
ject to  its  indebtedness,  may  be  acquired  by  the  City,  upon  the 


ll 


m 


236 


Service  At  Cost  Agreements 


payment  to  the  Company  by  the  City  of  an  amount  paid  in  upon 
its  capital  stock  at  the  date  of  purchase,  plus  — 

First,  unpaid  dividends  on  New  Capital  issued  under  the  terms 
of  the  Grant,  and 

Second,  accumulated  unpaid  dividends  at  five  per  cent  per 
annum  on  all  Capital  Stock.     (Art.  27.) 

Denver  Cost  of  Service  Ordinance 

The  City  may  at  its  own  election,  purchase  either  the  City  lines 
of  the  Company,  alone,  or  its  City  and  interurban  lines  together. 
In  the  event  that  the  City  lines  alone  are  purchased,  the  Com- 
pany shall  be  awarded  severance  damages,  fixed  either  by  agree- 
ment between  the  City  and  the  Company,  or  by  arbitration,  and 
in  addition  existing  arrangements,  for  the  use  of  tracks  and  facili- 
ties  as  between  the  interurban  and  City  lines  are  continued. 
(Art.  12.) 

The  purchase  price  is  the  Stipulated  Fair  Value  of  the  Com- 
pany's property  at  the  time  of  Purchase.     (Art.  12.) 

Stipulated  Fair  Value  is  defined  as  meaning  the  Basic  (Initial) 
Value  plus  the  total  cost  of  additions,  betterments  and  improve- 
ments made  after  the  date  of  Basic  Value,  minus  the  value  of 
property  retired,  both  as  defined  by  the  Rulings  and  Uniform 
System  of  Accounts  of  the  Interstate  Commerce  Commission, 
and  determined  from  the  records  of  the  Company,  authenticated 
by  the  Board  of  Tramway  Control.     (Art.  4,  Sec.  2.) 

Included  in  the  property  covered  by  the  purchase  price,  are 
all  amounts  in  the  Renewal  and  Depreciation  Reserve  Fimd  and 
all  surplus  above  the  "  normal  "  amount  in  the  Fare  Control 
Fund.  If,  however,  the  Fare  Control  Fund,  shall  be  less  than 
"normal,"  the  amount  of  the  deficit  shall  be  added  to  the  pur- 
chase price  and  paid  to  the  Company.     (Art.  12.) 

In  the  event  of  purchase  the  property  may  be  delivered  to  the 
Citv  free  and  clear  of  all  liens  or  incumbrances,  in  which  case 
the  full  amount  of  the  purchase  price  shall  be  paid  to  the  Com- 
pany in  cash,  or  the  City  may  assume  certain  mortgage  liens,  the 
face  or  par  value  of  securities  thereunder  not  to  exceed  the  Stipu- 
lated Fair  Value,  and  in  such  case  only  the  difference  between 
the  value  of  such  securities  and  the  Stipulated  Fair  Value  of  the 


Service  At  Cost  Agreements 


237 


Company  shall  be  paid  to  the  Company,  while  the  value  of  such 
securities  shall  be  set  aside  to  discharge  said  mortgage  liens. 
(Art.  12.) 

In  the  event  of  purchase  the  City  shall  assume  and  carry  out 
all  contracts  with  other  railway  companies  for  the  joint  use  of 
tracks  and  existing  agreements  for  the  purchase  of  supplies  and 
equipment  contracted  for,  and  undelivered.     (Art.  12.) 

*     Denver  Elastic  Six-cent  Fare  Ordinance 

No  provisions. 

Minneapolis 

The  giving  of  notice  by  the  Company  of  its  intention  to  pur- 
chase constitutes  an  obligation  upon  the  part  of  the  City  to  buy 
and  on  the  part  of  the  Company  to  sell,  which  obligation  may  be 
enforced  by  mandamus  or  other  appropriate  legal  proceeding. 
(Sec.  18.) 

Upon  the  purchase  of  the  property,  the  City  shall  assume  and 
carry  out  all  contracts  for  the  joint  use  of  tracks  and  for  the  pur- 
chase of  undelivered  equipment  and  supplies.     (Sec.  18.) 

The  property  shall  be  transferred  to  the  City  free  and  clear  of 
liens  or  all  other  incumbrances.  If,  however,  the  City  shall 
purchase  the  property  prior  to  the  retirement  of  any  existing 
mortgage,  the  Company  shall  furnish  satisfactory  security  that 
such  mortgage  shall  be  retired.  If  the  City  elects  to  require  cash 
security,  it  shall  assume  the  payment  of  the  difference  in  interest 
charges  as  between  the  interest  paid  on  the  mortgage  bonds  and 
that  required  for  the  cash  deposit,  and  such  difference  shall  be 
charged  as  an  operating  expense.     (Sec.  18.) 

All  unexpended  balances  in  any  Funds  created  under  the  pro- 
visions of  the  Grant,  as  well  as  cash  on  hands  and  bills  and 
accounts  receivable  become  the  property  of  the  City.     (Sec.  19.) 

The  City  assumes  and  shall  pay  all  liabilities  on  account  of 
damages  and  injuries  to  persons  and  property  occurring  subse- 
quent to  the  taking  effect  of  the  Grant  and  prior  to  the  conveyance 
of  the  property.  The  City  shall  fulfill  all  outstanding  obliga- 
tions and  contracts  of  the  Company  and  pay  all  bills  and  accounts 
payable,  providing  that  such  obligations  have  been  incurred  with 
lo 


)> 


'f 


238 


Skevice  At  Cost  Agreements 


the  approval  of  the  City  Council  and  further  providing  that  it 
shall  pay  nothing  on  account  of  any  sums  claimed  hy  the  Company 
on  account  of  payment  of  return.     (Sec.  19.) 

The  price  to  he  paid  hy  the  City  to  the  Company  for  the  prop- 
erty shall  be: 

The  sum  of  $24,000,000  (Value  of  property  as  of  January  1, 
1919)  J  plus-- 

The  sum  necessary  to  retire  securities  issued,  or  debt  incurred 
on  account  of  the  Stablizing  Fund,  and  Capital  Expenditures,  and 

Any  accumulated  deficiency  in  the  items  constituting  the  Cost 
of  Service,  except  payments  to  the  Company  on  account  of  return, 
and  minus  — 

Capitalization  retired  with  sums  taken  from  the  Amortization 
Fund,  and 

Loans  made  to  the  Company  by  the  City  or  bonds  guaranteed 
by  the  City  and  used  for  Capital  purposes.    (Sec.  19.) 

H  at  the  time  of  purchase  the  City  shall  have  the  legal  power 
to  assume  the  payment  of  existing  mortgages  or  other  liens  upon 
the  property,  or  to  purchase  the  proj^erty  subject  to  such 
mortgages  or  liens,  it  may  elect  to  assume  such  mortgages  or  liens, 
in  which  case  their  amount  shall  be  deducted  from  the  purchase 
price.     (Sec.  19.) 

1.— BY  LICENSEE  OF  QTY 

(a)  When  Purchase  Can  Be  Made 

Chicago 
1^0  provisions. 

Philadelphia 

At  the  same  periods  provided  for  purchase  by  City.     (Sec.  11 
of  1907  Contract.) 

Denver  Sebvice  at  Cost  Ordinance 
1^0  provisions. 

Denver  Elastic  Six-cent  Fare  Ordinance 
IsTo  provisions. 


Service  At  Cost  Agreements 


239 


Minneapolis 
After  January  1,  1925  (five  years  after  taking  effect  of  grant) 
at  the  same  periods  provided  for  purchase  by  the  City.    (Sec.  18.) 

(b)  Terms  of  Purchase 

Chicago 
K'o  provisions. 

Philadelphia 

The  City's  right  to  purchase  may  be  assigned  to  an  individual, 
firm  or  corporation,  and  may  be  put  up  at  auction  and  sold  to  the 
highest  bidder,  in  which  case  the  Company  shall  have  a  right  to 
bid.  The  purchase  by  an  assignee  of  the  City  shall  be  made 
under  the  same  terms  as  those  provided  for  purchase  by  the  City. 
(Sec.  11  of  1907  Contract.) 

Denver  Service  at  Cost  Ordinance 
"No  provisions. 

Denver  Elastic  Six-cent  Fare  Ordinance 
"No  provisions. 

Minneapolis 

The  Licensee  must  have  lawful  authority  to  acquire,  own  and 
operate  street  railways  in  the  city  of  Minneapolis.     (Sec.  18.) 

The  City  may  designate  the  Licensee  only  after  receiving  bids 
for  the  right  to  purchase  said  property,  which  bids  may  be  based 
upon  a  lower  rate  of  return,  a  reduction  in  Capital  Value,  or  a 
cash  bonus  to  the  City.  Bids  may  be  received  for  operation 
under  the  tei-ms  of  the  existing  contract  or  such  contract  as  modi- 
fied, but  in  the  absence  of  a  new  contract,  the  bidder  shall  agree 
to  take  over  the  property  subject  to  all  existing  terms  and  obliga- 
tions, including  the  right  of  the  City  to  purchase  or  to  designate 
a  purchaser.    The  City  may  reject  any  or  all  bids.     (Sec.  18.) 

A  Licensee  so  designated  shall  acquire  the  right  to  purchase  the 
property  under  terms  and  conditions  provided  for  its  purchase 
by  the  City,  except  that  ten  per  cent  shall  be  added  to  the  pur- 
chase price  as  well  as  an  amount  that  shall  take  into  account  the 


240 


Service  At  Cost  Agreements 


sum  or  sums  transferred  to  tlie  Company  or  to  the  holders  of  its 
securities  from  the  Amortization  Fund.  Licensee  shall  not  add 
the  ten  per  cent  to  Capital  Value,  but  it  shall  be  considered  as  a 
bonus  to  the  City.     (Sec.  18.) 

C.   CONTROL 

1.— CORPORATE  AUTONOMY 

Chicago 
The  Orant  provides  for  the  organization  of  a  Company  for  the 
purpose  of  consolidating  the  surface  and  elevated  lines  of 
Chicago,  the  building  of  additional  surface  and  elevated  lines 
and  the  construction  of  subways  as  well  as  the  operation  of  sub- 
ways  built  by  the  City,  and  the  management  and  operation  of 
the  system  so  created,  "  not  for  pecuniary  profit.''  The  original 
Board  of  Nine  Trustees  is  to  be  constituted  by  ordinance  of  the 
City  Council  approving  previous  selections  and  at  the  expiration 
of  the  term  of  office  of  each  his  successor  is  to  be  named  by  the 
Board  from  nominations  made  by  the  City  Council.  Practically 
all  of  the  acts  of  the  Board  are  prescribed  by  the  terms  of  the 
Grant     (Sec.  1.) 

Philadelphia 

"Nothing  in  this  article  (providing  for  a  supervising  Board) 
shall  deprive  the  Company's  officers  and  directors  of  the  manage- 
ment of  the  Company's  properties,  nor  shall  anything  herein  con- 
tained be  deemed  a  delegation  to  the  Board  of  any  of  the  powers 
vested  in  the  Director  (Director  of  the  Department  of  City 
Transit)  or  the  Commission.  (Pennsylivania  Pvhlic  Service 
Commissi4)ii,)    *     *    *"    (Art.  31,  Par.  7.) 

The  Mayor,  ex  officio,  and  two  citizens  of  Philadelphia  to  be 
chosen  from  time  to  time  by  the  Councils,  to  serve  for  four  years 
and  tiU  their  successors  are  appointed,  shall,  as  representatives  of 
the  City,  be  members  of  the  Board  of  Directors  of  the  Company, 
and  as  such  exercise  all  the  powers  of  directors,  and  vote  upon 
all  questions  which  may  come  before  the  Board,  as  if  they  had 
been  elected  by  the  stockholders  of  the  Company,  but  without 
incurring  any  liability  as  directors.     (Sec.  4,  1907  Contract.) 


Service  At  Cost  Agreements 


241 


Denver  Service  at  Cost  Ordinance 
No  surrender  of  corporate  autonomy  is  required  by  the  terms 
of  the  ordinance.  It  is  specifically  provided  that  the  purpose  of 
the  ordinance  is  "without  prejudice  or  waiver  of  any  conten- 
tions by  the  City  and  County  of  Denver  or  the  Denver  Tramway 
Company  as  to  the  validity,  scope  or  duration  of  any  franchise, 
grant  or  right  of  way."    (Art.  14,  Sec.  1.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Minneapolis 
There    are    no     specific     provisions     relative    to     Corporate 
Autonomy.     The  restrictions  put  upon  the  Company  by  the  terms 
of  the  grant  are  concerned  only  with  the  operation  of  the  Com- 
pany as  it  affects  the  City  of  Minneapolis. 

2.— OF  SERVICE 

(a)  Within  Municipality 

Chicago 

"  The  Company  by  accepting  this  ordinance  agrees  to  comply 
with  all  lawful  regulations  of  the  service  of  the  said  local  trans- 
portation system  which  may  be  prescribed  from  time  to  time  bv 
the  City."     (Sec.  9.) 

Certain  enumerations  of  matters  in  connection  with  service 
are  contained  in  the  Grant  and  in  addition  the  City  reserves  its 
full  police  power  and  the  right  to  make  regulations  to  secure  the 
comfort,  health,  safety,  welfare  and  accommodation  of  the  public 
(Sec.  9.) 

Philadelphia 
Except  as  to  stopping  places,  the  establishment,  omission  or 
changing  of  which  is  placed  entirely  in  the  hands  of  the  Super- 
vising Board,  the  initial  control  of  "  rules  and  standards  of  main- 
tenance, service,  routing  and  adequacy  and  suitability  of  equip- 
ment "  is  with  the  Company,  but  the  Supervising  Board  is  em- 
powered to  "pass  upon,  adopt,  and  alter"  the  acts  of  the 
Company  relative  thereto.     (Art.  31;  Pars.  4  and  5.) 


rtj 


!• 


II 


•II 


242 


Service  At  Cost  Agreements 


Denver  Service  at  Cost  Ordinance 
The  ordinance  gives  the  City  "  control,  regulation  and  super- 
vision of  the  Tramway  service  on  all  routes  of  the  City  system, 
including  the  right  to  fix  the  schedules,  transfer  regulations  and  to 
^Xy  change  and  extend  routes."  It  should  be  noted,  however,  that 
this  control  is  vested  in  a  body  upon  which  the  Company  is 
represented.    (Art.  3;  Sec.  1.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Minneapolis 

The  City  reserves  the  right  to  control  and  regulate  service  and 
specifically  to 

Fix  the  type  of  caJrs, 

Fix  and  amend  schedules, 

Control  stops,  routes,  headway  and  speed, 

Provide  rules  and  regulations  for  heating,  lighting,  ventilation 
and  sanitation.    (Sec.  4.) 

(b)  Outside  MnnicipaHty 

Chicago 
The  rights  conferred  upon  the  Company  by  the  Grant  cover 
lines  in  the  City  of  Chicago  and  suburban  territorv^  (but  not  out- 
side the  State  of  Illinois)  extending  not  more  than  20  miles  from 
the  City  limits.  (Sec.  1.)  Before  the  Grant  became  effective,  its 
confirmation  by  the  Illinois  State  Legislature  wajs  necessary 
(Sec.  34)  so  that  the  control  of  the  City  would  have  extended  to 
all  lines  operated  by  the  Company. 


Service  At  Cost  Agreements 


243 


Philadelphia 


'No  provisions. 


Denver  Sekvice  at  Cost  Ordinance 
No  provisions,  but  the  "  City  System  "  is  defined  by  the  ordi- 
nance to  include  certain  lines  extending  beyond  the  City  limits. 
(Art.  1;  Sec.  2.) 


Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Minneapolis 
The  City  exercises  no  control  outside  of  City  limits,  except  as 
to  that  part  of  the  system  in  the  village  of  Columbia  Heights  and 
on  the  Fort  Snelling  Military  Keservation,  which  are  included. 
Tracks  on  Park  property  are .  subject  to  reasonable  niles  and 
regulations  of  the  Board  of  Park  Commissioners.     (Sec.  2.) 

I.— EXTENSIONS,  BETTERMENTS  AND  PERMANENT  IMPROVEMENTS 

(a)  Definitioiis 

Chicago 
Betterments  and  Extensions  are  defined  to  "designate  and 
include  all  betterments,  extensions,  additions,  equipment  and 
other  property  (including  original  pavement  of  the  right  of  way) 
acquired  by  the  Company  after  the  effective  date  of  this  ordi- 
nance, through  construction,  reconstruction,  alteration,  purchase 
or  otherwise,  as  a  part  of  or  for  use  in  connection  with  its  local 
transpoitation  system.'^     (Sec.  3.) 

Philadelphia 
There  is  no  general  definition.  The  Company  was  not  removed 
from  the  control  of  the  Pennsylvania  Public  Service  Commission 
by  the  term  of  the  Grant,  so  that  the  rulings  of  the  Commission 
as  to  what  constituted  capital  expenditures  would  prevail.  The 
Grant  was  for  the  purpose  of  securing  the  operation  by  the  Com- 
pany of  the  rapid  transit  system  to  be  built  by  the  City,  for  its 
equipment  by  the  Company  and  for  the  building  of  certain  new 
facilities  by  the  Company.  There  are  in  the  grant  specific  pro- 
visions describing  such  facilities. 

Denver  Service  at  Cost  Ordinance 
It  is  provided   that   "Additions,   Betterments   and   Improve- 
ments "  shall  be  defined  by  the  rulings  and  the  Uniform  System 
of  Accounts  of  the  Interstate  Commerc  Commission.     (Art.  4; 
Sec.  2.) 


344- 


Service  At  Cost  Agreements 


1 1 


Denver  Elastic  Six-cent  Fare  Ordinance 

Ko  provisions. 

Minneapolis 

The  Uniform  System  of  Accounts  of  the  Interstate  Commerce 
Commission,  except  as  they  may  he  modified  hy  the  Grant  or  by 
subsequent  City  ordinances  shall  govern.  The  Company  is  obli- 
gated to  set  up  in  its  books  of  accounts,  the  Standard  Property 
Accounts  of  such  I.  C.  C.  System  and  with  the  advice  and 
approval  of  the  City  Council  allocate  all  expenditures  for 
additions  to  property  value  among  them.     (Sec.  16.) 

(b)  Within  MunicipaUtj 

Chicago 

The  Grant  and  the  Exhibit  attached  thereto  (Exhibit  B.) 
specify  a  number  of  Extensions,  Betterments  and  Permanent 
Improvements  which  the  Company  is  obligated  to  make  to  its 
System.  A  portion  of  these  are  specified  to  be  made  within  a 
period  of  three  years  after  the  taking  effect  of  the  Grant,  another 
portion  in  a  period  of  three  years  after  the  first  period  of  three 
years  and  others  thereafter.  They  included  additions  to  surface 
and  elevated  lines,  subways  for  surface  lines  and  other  rapid 
transit  facilities. 

In  addition  the  Company  shall  construct  such  additions  to  and 
extensions,  both  of  rapid  transit  and  surface  lines  as  may  "  be 
required  for  furnishing  adequate  local  transportation  facilities  and 
service  under  the  principles  and  provisions  of  the  ordinance." 
(Sec.  5.) 

The  Company  need  not,  however,  provide  money  either  for  the 
Extensions,  Betterments  and  Permanent  Improvements  specified 
in  Exhibit  B,  or  others,  if  the  Gross  Receipts  of  the  Company 
during  the  previous  fiscal  year  have  been  insufficient  to  pay  the 
Cost  of  the  Service.     (Sec.  10.) 

Any  work  in  connection  witl^  Extensions,  Betterments,  and 
Permanent  Improvements  involving  an  expenditure  of  more  tha^i 
t$5,000  shall  be  let  by  contract  to  the  lowest  responsible  bidder, 
upon  plans  and  specifications  furnished  by  the  Trustees  and  after 
30  days  advertising,  bids  to  be  publicly  opened.     (Sec.  6.) 


Service  At  Cost  Agreements 


245 


The  cost  of  Extensions,  Betterments  and  Permanent  Improve- 
ments shall  include  payments  on  account  of  injuries  to  persons 
or  property  occurring  in  connection  therewith,  as  well  as  charges 
for  the  use  of  Company  equipment,  engineering  and  supervision. 
♦(Sec.  6.)  When  the  Traction  Fund  is  exhausted,  all  subway  con- 
struction, both  of  those  provided  for  in  Exhibit  B  and  others,  be 
paid  for  by  the  Company  and  added  to  Capital  Account  or  by  the 
City  through  special  assessment  against  property  owners  benefited. 
(Sec.  7.) 

Plans,  specifications  and  estimates  for  subways  shall  be  pre- 
pared by  the  Trustees  and  the  work  done  under  their  supervision, 
but  contracts  therefor  shall  be  let  by  the  City  and  payments  there- 
for made  by  the  City.  If  subways  in  addition  to  those  specified 
in  Exhibit  B  shall  be  deemed  necessary  by  the  Trustees  they  (the 
Trustees)  shall  submit  plans,  specifications  and  estimates  therefor 
to  the  City  Council,  which  may  authorize  such  construction. 
(Sec.  7.) 

After  the  City  shall  have  expended  the  sums  in  the  Traction 
Fund,  the  Company  is  required  to  furnish  to  it  such  sums  as  it 
may  require  for  subway  construction.  The  money  so  furnished 
shall  be  taken  from  Capital  Account  and  shall  be  treated  as  a 
Capital  Expenditure.     (Sec.  7.) 

The  City  may  authorize  the  provision  in  specifications  for  sub- 
ways the  inclusion  of  galleries,  corridors  or  other  facilities  for  the 
use  of  City  utilities,  or  utilities  authorized  to  use  such  facilities 
by  the  City,  but  the  Company  shall  not  be  required  to  furnish 
money  for  such  construction,  and  no  party  shall  have  authority  to 
use  them  unless  it  be  granted  by  City  ordinance.     (Sec.  7.) 

Upon  the  completion  of  any  subway,  or  of  a  portion  of  a  sub- 
way, which  in  the  judgment  of  the  Trustees  may  be  advantage- 
ously used  for  operation,  the  Company  shall  proceed  to  operate 
trains  in  such  subway  and  shall  pay  to  the  City  an  annual  rental 
of  six  per  cent  on  the  cost  of  construction.  Included  in  such  cost 
shall  be  an  allowance  of  three  per  cent  upon  all  amounts  paid  by 
the  City  for  construction,  until  operation  begins,  but  the  amounts 
furnished  by  special  assessment  of  property  owners,  or  by  the 
Company,  or  for  the  construction  of,  or  on  account  of  the  con- 
struction of  galleries  or  facilities  for  other  utilities  shall  not  be 
included  in  the  cost.     (Sec.  7.) 


I 


246 


Service  At  Cost  Agreements 


The  Company  is  required  to  renew,  repair  and  maintain  all 
subways  or  portion  of  subways  used  by  it,  and  shall  acquire  no 
ownership  therein,  by  reason  of  any  payments  made  by  it  towards 
the  cost  of  construction.     (Sec.  7.) 

The  City  Traction  Fund  has  been  accumulated  through  the 
division  of  receipts  of  the  surface  lines  provided  for  in  the  Trac- 
tion ordinances  of  1907.  It  is  defined  by  the  Grant  as  consisting 
of  the  money  that  has,  on  the  effective  date  of  the  Grant  been  paid 
into  such  Fund,  any  payments  made  into  it  thereafter  under  the 
Traction  Ordinances,  and  payments  made  thereinto  on  account  of 
subway  rentals  paid  by  the  Company.  It  may  be  expended  only 
for  subway  construction,  including  the  provision  of  galleries  and 
facilities  of  other  utilities,  and  for  the  assessment  against  the 
city  of  public  benefits  arising  from  the  opening  and  extension  of 
two  streets,  which  by  the  provisions  of  Exhibit  B.  are  to  be  opened 
or  extended.     (Sec.  13.) 

Philadelphia 
The  principal  object  of  the  Grant  is  to  secure  a  Unified  Trans- 
portation System  for  Philadelphia.  To  this  the  City  is  to  con- 
tribute certain  subways  and  elevate<l  lines  and  the  Company  its 
existing  subway  and  elevated  line  as  well  as  surface  lines,  the 
electrical  equipment  for  the  City  system  to  be  provided  by  the 
Company.  The  method  in  which  the  City  lines,  the  Company 
lines  and  the  equipment  therefor  shall  be  provided  are  set 
forth  in  considerable  detail  in  the  Grant  (Art.  V-2.)  The 
building  of  City  lines  is  at  the  pleasure  of  the  City.  If  they 
are  built  the  Company  must  provide  electrical  equipment  there- 
for, and  if  the  City  is  unable  to  provide  capital  for  cars,  yards, 
shops,  etc.,  the  Company  shall  furnish  such  equipment,  to  the 
limit  of  $3,000,000,  provided  it  can  secure  money  on  terms 
approved  by  city  councils  and  provided  that  the  City  shall  (if 
legal)  agree  to  purchase  same  from  the  Company  out  of  the  first 
money  available,  the  expenditure  to  be  later  repaid  by  the 
Company. 

The  determination  of  what  Extensions,  Betterments  and  Per- 
manent Improvements  the  Company  shall  build  is  left  to  the 
Pennsylvania  Public  Service  Commission,  the  Company  waiving 


Service  At  Cost  Agreements 


247 


any  objection  to  the  jurisdiction  of  the  Commission.  In  the  event 
that  the  Commission  refuses  to  assume  jurisdiction,  the  Company 
shall  obey  the  recommendations  of  the  Supervising  Board,  sub- 
ject only  to  its  ability  to  finance  them  under  the  terms  of  the 
Grant.     (Art.  4.) 

The  Company  shall  reasonably  anticipate  the  growth  of  traffic 
and  provide  therefor.  The  facilities  to  be  furnished  shall  be  the 
best  known  to  the  art  and  replacements  and  renewals  shall  at  least 
provide  facilities  equal  to  those  replaced  or  renewed  and  shall  in 
addition  include  such  improvements  as  the  state  of  the  art  may 
have  developed.     (Art.  6.) 

Extensions,  Betterments  and  Permanent  Improvements  shall  be 
made  in  accordance  with  plans  and  specifications  approved  by  the 
Supervising  Board.     (Art.  6.) 

The  cost  of  Extensions,  Betterments  and  Permanent  Improve- 
ments shall  include  the  following: 

Net  cost  in  money  of  purchase  or  construction ; 

Net  cost  in  money  of  administration,  engineering,  superin- 
tendence, legal  services,  insurances  and  damages ; 

Taxes,  assessments  and  other  governmental  charges,  paid  or 
accrued  before  the  beginning  of  its  operation  and  such  assess- 
ments for  benefits  during  its  operation  as  are  in  the  opinion  of 
the  Board  not  chargeable  to  Gross  Revenue ; 

Interest  or  dividend  and  sinking  fund  charges  upon  money 
used  or  securities  issued  to  pay  for  the  Extension,  Betterment  or 
Permanent  Improvement,  incurred  prior  to  operation ; 

Cost  of  securing  capital,  including  engraving  and  printing  of 
securities,  advertising,  taxes,  expenses  of  selling,  and  trustees' 
expenses  in  connection  with  the  original  issue  of  securities ; 

Expenditures  for  repairs,  replacements  or  renewals  made 
during  construction,  or  after  operation,  which  in  the  judgment  of 
the  Supervising  Board,  shall  have  been  necessitated  by  faulty 
construction  or  design.     (Art.  9;  Par.  1.) 

It  is  the  duty  of  the  Supervising  Board  to  report  to  the  City 
Councils  as  to  the  advisability,  reasonableness  and  necessity  of 
new  lines,  extensions,  or  equipment,  and  to  review  or  compile 
estimates  covering  construction,  operation  and  method  of  finan- 
cing and  to  bring  proceedings  before  the  Pennsylvania  Public 


li 


h 


248 


Service  At  Cost  Agreements 


III 


Service  Commission  to  require  the  undertaking  of  Extensions, 
Betterments  and  Improvements  by  the  Company.  (Art.  31; 
Par.  3.) 

The  Supervising  Board  shall  give  hearings  on  all  petitions  for 
Extensions,  Betterments  and  Improvements.     (Art.  31 ;  Par.  4.) 

The  Board  is  charged  with  the  duty  of  inspecting  all  work  and 
materials  in  connection  with  both  construction  and  operation  and 
must  be  afforded  the  facilities  for  such  inspection  by  the  Com- 
pany.    (Art  34.) 

Denver  Service  at  Cost  Ordinance 
Capital  expenditures  exceeding  in  any  one  calendar  year  one- 
half  of  one  per  cent  of  the  Stipulated  Fair  Value,  may  not  be 
added  to  Stipulated  Fair  Value  as  affecting  the  cost  of  service, 
unless  approved  by  a  majority  of  the  Board  of  Tramway  Control. 
(Art.  3;  Sec.  7.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Minneapolis 

The  Company  is  required  by  the  terms  of  the  Grant  to  con- 
struct and  put  into  operation  during  the  first  year  in  which  the 
Grant  is  effective  certain  specified  extensions.  In  addition  it  is 
required  within  the  time  determined  by  the  City  Council  to  con- 
struct and  put  into  operation  certain  other  specified  extensions. 
(Sec.  7.) 

Either  the  City  or  the  Company  may  propose  Extensions,  Bet- 
terments or  Permanent  Improvements.  If  proposed  by  the  Com- 
pany they  shall  not  be  carried  out  unless  approved  by  the  City 
Council.  Before  they  shall  be  ordered  by  the  City  Council  or 
constructed  by  the  Company,  there  shall  be  made  under  the  direc- 
tion of  the  Street  Kailway  Supervisor,  a  careful  survey  of  all 
material  facts,  including 

The  number  of  people  to  be  served  by  such  line  or  extension ; 

The  estimated  expense  of  construction  and  equipment; 

An  estimate  of  earnings  for  the  immediate  year  and  years; 

An  estimate  of  the  effect  upon  the  gross,  net  and  surplus  earn- 
ings of  the  entire  railway  system.     (Sec.  7.) 


I 


Service  At  Cost  Agreements 


249 


When  estimates  of  the  cost  of  plans  and  specifications  for  Exten- 
sions, Betterments  and  Permanent  Improvements  have  been 
approved  by  the  City  Council  and  filed  with  the  Company,  the 
Company  may  object  on  the  ground  that  their  carrying  out  would 
impair  the  payments  of  the  cost  of  service,  and  the  Company  shall 
be  entitled  to  a  hearing  before  the  City  Council  upon  ten  days' 
notice  before  any  Extensions,  Betterments  or  Permanent  Improve- 
ments shall  be  ordered  by  the  City  Council.     (Sec.  7.) 

Within  one  year,  or  such  other  time  as  the  City  Council  may 
decide,  from  the  date  of  approval  by  the  Council,  the  Company 
shall  construct  and  operate  the  Extensions,  Betterments  or 
Improvements  as  ordered.     (Sec.  7.) 

If  the  Company  refuses  or  neglects  to  construct  extensions  as 
ordered  by  the  City  Council,  the  City  may  itself  make  such 
extensions,  under  the  direction  of  the  City  Engineer,  the  stand- 
ard of  the  construction  to  be  equal  to  that  adopted  by  the  Com- 
pany for  lines  in  similiar  territory  and  for  similiar  service.  The 
Company  is  required  to  equip  and  operate  such  extensions,  the  rate 
of  fare,  service  and  maintenance  to  be  in  conformity  with  that 
provided  by  the  Grant  for  the  rest  of  the  System,  compensation  to 
be  made  to  the  Company  on  terms  equitable  both  to  the  City  and 
the  Company.     (Sec.  7.) 

Upon  Capital  invested  in  such  extensions  the  City  shall  receive 
the  same  rate  of  return,  and  under  the  same  conditions,  as  is  pro- 
vided by  the  Grant  for  capital  invested  by  the  Company. 
(Sec.  7.) 

The  right  of  the  City  thus  to  construct  and  compel  the  Com- 
pany to  operate  Extensions,  does  not  release  the  Company  from 
its  obligations  to  construct  Extensions,  Betterments  and  Per- 
manent Improvements,  when  ordered  so  to  do  bv  the  City. 
(Sec.  7.) 

After  the  first  year  of  operation  under  the  Grant,  the  Company 
may  not  be  required  to  construct  street  railway  tracks  in  a  street 
that  is  less  than  40  feet  in  width.     (Sec.  7.) 

Disputes  between  the  City  and  the  Company  arising  in  regard 
to  Extensions,  Betterments  and  Permanent  Improvements  may 
be  arbitrated.     (Sec.  7.) 


't  I 


I!; 


II 


250 


Service  At  Cost  Agreements 


(c)  Outside  of  Municipality 


Chicago  , 
No  provisions. 

Philadelphia 

The  Councils  are  empowered  to  stipulate  the  terms  and  condi- 
tions under  which  the  Company  may  lease  or  operate  lines  out- 
side the  City  and  the  Supervising  Board  is  charged  with  the  duty 
of  recommending  to  the  Councils  terms  and  conditions  in  con- 
nection with  such  leases  and  operation.     (Art.  31,  Par.  11.) 

There  are  no  other  provisions  in  the  contract  affecting  control 
of  Extensions,  Betterments  and  Permanent  Improvements  out- 
side the  municipality,  except  that  certain  parts  of  the  system 
extend  outside,  and  over  these  the  City  exercises  such  control  as  is 
provided  in  the  Orant  for  all  lines. 

Denver  Service  at  Cost  Ordinance 
1^0  provisions. 

Denver  Elastic  Six-cent  Fare  Olt^t  nance 

^o  provisions. 

Minneapolis 

City  exercises  control  over  certain  specified  lines  outside  of 
City  and  no  others. 

4.—  CAPITALIZATION,  FINANCES  AND  ACCOUNTS 

(a)  Ordinary  Expenses 

Chicago 
No  provisions  in  the  Grant.     The  Trustees  have  control. 

Philadelphia    . 

Contracts  covering  the  leasing  of  car  and  station  advertising, 
news  stands  and  other  vending  privileges,  are  subject  to  the 
approval  of  the  Supervising  Board.     (Art.  17.) 

Contracts  for  power  are  subject  to  the  approval  of  the  Super- 
vising Board.     (Art  31,  Par.  5.) 


Service  At  Cost  Agreements 


251 


Terms  and  conditions  under  which  the  Company  may  grant 
permits  for  show  windows,  entrances  or  other  easements,  or  privi- 
leges in  connection  with  the  operation  of  the  system  are  subject 
to  the  approval  of  the  Supervising  Board.     (Art,  31,  Par.  5.) 

Such  control  as  is  provided  by  the  laws  of  the  State  is  exer- 
cised by  the  Pennsylvania  Public  Service  Commission. 

Denver  Service  at  Cost  Ordinance 
The  Company  shall  submit  prior  to  the  last  day  of  each  calen- 
dar month,  an  estimate  of  the  cost  of  service,  total  operations  and 
gross  revenues  for  the  ensuing  year.     (Art.  3,  Sec.  8.) 

No  operating  expenses  for  any  year,  exceeding  three  per  cent 
of  the  operating  expenses  for  the  preceding  year,  shall  be  added 
to  the  cost  of  service,  unless  they  be  approved  by  the  Board  of 
Tramway  Control.     (Art.  3,  Sec.  7.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Minneapolis 

The  City  Council  has  the  right  to  require  the  submission  of  an 
annual  budget  and  supplements  thereto,  in  wbich  case  no  expendi- 
tures other  than  those  detailed  in  such  budgets  as  approved  by  the 
City  Council  shall  be  made.     (Sec.  5.) 

It  is  provided  that  the  Company  shall  pay  its  general  officers 
no  higher  compensation  than  that  paid  by  other  street  railway 
companies  "  or  other  enterprises  "  of  equal  magnitude  for  work 
of  the  same  general  character.  Diiferences  between  the  City  and 
the  Company  as  to  salaries  may  be  arbitrated.     (Sec.  30.) 

The   City   Council   may   exercise   such   "  reasonable   control " 
over  contracts  for  and   purchase  of  supplies   and   payments  on 
account  of  injuries  and  damages  as  will   afford   it  protection 
(Sec.  5.) 

(b)  Securities 

Chicago 
For  the  purpose  of  acquiring  the  surface  and  elevated  line? 
as   provided   in   the   ordinance,   the   Company   is   authorized    to 
assume  liens  against  such  property  to  the  amount  of  not  more 


III 


252 


Service  At  Cost  Agreements 


than  the  Capital  Account  of  the  Company  as  fixed  by  the  Ordi- 
nance, (Note:  The  Capital  Account  fixes,  in  effect,  the  price  at 
which  such  property  shall  he  acquired),  and  to  issue  (to  pay  the 
difference  between  the  amount  of  the  liens  assumed  and  Capital 
Account,  which  difference  shall  not  be  more  than  40  per  cent  of 
Capital  Account),  debentures  or  other  obligations,  which  shall  not 
have  the  right  of  foreclosure  nor  bear  any  date  or  time  of  redemp- 
tion, but  shall  be  subject  to  call  for  payment  under  the  provi- 
sions of  the  Grant,  or,  subject  to  the  rights  of  lienors,  at  the  time 
of  purchase  by  the  City.  The  manner  of  acquiring  each  of  the 
properties  is  separately  provided  for.     (Sec.  2.) 

The  Company  is  authorized  to  place  upon  its  property  a  First 
and  Refunding  Mortgage  or  Trust  Deed  to  secure  bonds  or  interest 
bearing  obligations  to  be  issued  for  capital  expenditures.  In  addi- 
tion, such  mortgage  may  secure  (a)  refunding  bonds  or  interest 
bearing  obligations,  issued  after  the  date  when  the  Grant  becomes 
effective;  (b)  refunding  bonds  or  interest  bearing  obligations 
which  were  a  lien  upon  the  property  at  the  date  when  Grant 
became  effective,  and  (c)  provide  the  Emergency  Fund.  In 
addition,  the  Company  may  place  upon  its  property  a  mortgage 
or  trust  deed,  subordinate  to  the  First  and  Refunding  Mortgage 
or  Trust  Deed,  to  secure  bonds  or  interest  bearing  obligations 
which  shall  be  used  only  for  refunding  or  retiring  (by  payment 
or  exchange)  bonds  or  interest  bearing  obligations  which  were  a 
lien  upon  its  property  at  the  time  Grant  became  effective.  No 
other  lien  shall  be  placed  upon  the  Company's  property. 
(Sec.  11.) 

All  New  Capital  obtained  by  the  Company  shall  be  through 
the  sale  of  bonds,  debentures  or  other  obligations  of  the 
Company,  to  be  sold  after  public  advertisement  and  on  the  terms 
most  advantageous  to  the  Company.     (Sec.  2.) 

The  return  upon  debentures  issued  for  the  payment  of 
acquired  property  is  fixed  at  eight  per  cent  from  the  date  when  the 
Grant  becomes  effective  until  eluly  1,  1932,  and  thereafter  at 
seven  per  cent.     (Sec.  2.) 

The  interest  to  be  paid  on  new  bonds,  debentures  and  other 
obligations  of  the  Company  is  on  the  basis  of  the  most  advan- 
tageous returns  obtainable  after  public  advertisement  and  com- 
petitive bidding.     (Sec.  2.) 


Service  At  Cost  Agreements 


253 


Philadelphia 
* 

When  the  Company  desires  to  make  capital  expenditures,  it  shall 
submit  to  the  City  Councils  a  plan  for  raising  such  capital,  and 
shall  issue  no  bonds,  stocks,  or  incur  any  guarantee  or  liability  for 
carrying  out  such  plan,  until  the  plan  shall  be  approved  by  the 
City.     (Sec.  2,  1907  Contract.) 

Funds  for  New  Capital  requirements  shall  be  raised  when 
I>ossible  from  the  sale  of  bonds,  and  stock  shall  not  be  issued 
except  when  bonds  cannot  be  disposed  of  and  then,  only  with  the 
approval  of  the  City.  Such  stock  shall  be  fully  paid  for  in  ca-^h 
at  par.     (Sec.  3,  1907  Contract.) 

In  case  that  preferred  stock  is  issued,  payments  for  the  amor- 
tization thereof  (amount  of  such  payments  not  specified,  but  pre- 
sumbly  to  be  controlled  by  City  Council)  to  be  made  to  the  Sink- 
ing Fund  Commission  (See  D-3.)  to  be  held  for  the  purpose  of 
retiring  said  stock,  and  to  be  invested  in  such  stock.     (Art.  12.) 

In  case  that  bonds,  debentures  or  notes  are  issued,  payments  for 
the  amortization  thereof  (amount  of  such  payments  not  specified 
but  presumably  to  be  controlled  by  City  Councils)  to  be  made  to 
trustees  for  the  issue,  to  be  invested  by  them  in  the  issue,  pro- 
vided that  the  same  can  be  purchased  in  the  market  at  a  cost  of 
not  more  than  105  per  cent  of  the  par  value  with  accrued  inter- 
est    (Art.  12.) 

If  securities  cannot  be  purchased  in  accordance  with  the  above 
provisions,  the  sinking  funds  shall  be  invested  in  such  securities 
as  may  be  legal  investments  for  Trustees  under  the  laws  of  Penn- 
sylvania.    (Art.  12.) 

The  Company  shall  not  be  held  to  be  in  default  if  it  cannot 
secure  capital  under  the  terms  approved  by  City  Councils. 
(Art.  12.) 

Subject  to  the  approval  of  the  Supervising  Board,  the  Com- 
pany may  use  Initial  Surplus  (See  F-2,)  for  Extensions,  Better- 
ments and  Permanent  Improvements,  for  refunding  or  other  capi- 
tal requirements.     (Art.  16.) 

Denver  Service  at  Cost  Ordinance 
No  provisions. 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 
17 


III 


' 


I 


It 


^54 


Service  At  Cost  Agreements 


Minneapolis 
The  City's  control  over  the  issuance  of  securities  by  the  Com- 
pany is  practically  absolute  as  to  securities  protected  by  mortgage. 
It  is  provided  that  the  Company  may  place  upon  its  property 
and  rights  a  blanket  mortgage  or  deed  of  trust,  to  secure  bonds  to 
be  used. 

First,  For  refunding  bonds  or  other  interest  bearing  obliga- 
tions which  constituted  a  lien  upon  the  property  as  of  the  date 
that  the  Grant  became  effective,  and  for  providing  for  the 
Stablizing  Fund ; 

Secmd,  In  such  par  value  and  amount  as  may  be  approved  by 
the  City  Council,  for  the  purpose  of  providing  new  capital    (Sec 
15.)  ^       * 

The  indenture  of  mortgage  or  deed  or  trust  shall  not  be  lim- 
ited as  to  the  amount  of  bonds  or  other  evidences  of  indebted- 
ness that  may  be  issued  thereunder  and  shall  provide  that  each 
series  of  bonds  issued  thereunder  shall  be  co-ordinately  secured. 
It  shall  further  provide  that  bonds  issued  shall  bear  such  rate  of 
interest  as  the  City  Council  may  fix,  and  be  sold  at  not  less  than 
the  minimum  price  fixed  by  the  City  Council.     (Sec.  15.) 

Bonds  issued  under  the  blanket  mortgage  shall  be  issued  in 
alphabetical  series  and  each  series  numbered  consecutively.  A 
stipulated  number  of  Series  A.  is  set  aside  for  the  purpose  of  pay- 
ing off  the  prior  liens  upon  the  property.  If  not  so  used  they 
shall  he  cancelled  and  destroyed  by  the  Trustee  of  the  mortgage. 
(Sec.  15.) 

If  the  bonds  provided  to  be  set  aside  for  the  retirement  of  prior 
liens  cannot  be  sold  at  a  rate  of  interest  and  a  cost  to  finance,  or 
exchanged  for  such  prior  lien  bonds  on  a  basis  satisfactorv  to 'the 
City  and  the  Company,  then  the  Company  mav  refund  such  prior 
bonds  either  before  or  at  maturity,  if  it  be  advantageous  so  to  do 
and  the  refunding  shall  not  disturb  the.  lien  by  which  such  prior 
bonds  or  other  evidences  of  inedebtedness  are  secured.     (Sec.  15.) 

In  case  the  prior  bonds  or  other  evidences  of  indebtedness  are 
refunded,Tetired  or  refinanced  through  the  bonds  (Series  A),  pro- 
vided by  the  Grant,  then  no  securities  shall  be  issued  by  the  Com- 
pany which  shall  be  prior  to  the  lien  of  the  mortgage  or  trust  deed 
securing  such  bonds.    (Sec.  15.) 


Service  At  Cost  Agreements 


255 


Stocks,  bonds,  notes,  or  other  evidence  of  indebtedness,  running 
for  a  longer  period  than  one  year,  issued  by  the  Company  after 
the  Grant  takes  effect,  shall  provide  that  they  shall  be  callable  on 
any  annuity  or  interest  payment  date,  upon  terms  and  price  to  be 
recommended  by  the  Company  and  approved  by  the  City  Council. 
(Sec.  15.) 

Any  mortgage  or  trust  deed  and  securities  issued  thereunder, 
shall  be  subject  to  the  provisions  of  the  Grant,  including  the  right 
of  municipal  purchase.     (Sec.  15.) 

The  City  Council  may  require  the  Company  to  sell  its  securi- 
ties at  public  sale,  and  in  any  event  they  shall  be  sold  in  the  man- 
ner and  upon  the  notice  prescribed  by  the  City  Council.   (Sec.  15.) 

In  addition  to  the  securities  specifically  authorized  by  the 
Grant,  the  Company  may,  with  the  approval  of  the  City  Council, 
issue  equipment  trust  certificates  in  such  amounts  and  on  such 
terms  as  may  be  necessary  to  finance  the  operations  of  the  Com- 
pany.    (Sec.  15.) 

If  the  City  and  the  Company  cannot  agree  as  to  the  rate  of 
interest  and  cost  of  refinancing  or  refunding  the  prior  bonds,  or 
upon  the  terms  upon  which  Series  A  bond  shall  be  exchanged 
therefor,  the  matter  shall  be  arbitrated.     (Sec.  15.) 

(c)  Bookkeeping: 

Chicago 

The  Company  is  required  to  submit  to  the  City  Comptroller 
on  or  before  the  10th  day  of  March  of  each  year,  an  annual  report 
covering  the  preceding  year  ending  December  31.  Such  report 
shall  be  in  writing,  shall  be  sworn  to  by  the  Auditor  of  the  Com- 
pany and  shall  set  forth  in  reasonable  detail,  the  amount  of 
business  done  by  the  Company,  the  receipts  from  and  the  expenses 
of  conducting  the  Company's  business.  The  City  Comptroller 
or  accountants  authorized  by  him,  acting  under  the  direction  of 
the  Mayor  or  City  Council  shall  have  at  all  reasonable  times  access 
to  the  books,  vouchers  and  records  of  receipts  and  expenditures 
of  the  Company  for  the  purposes  of  verifying  such  reports  and 
the  rights  of  the  City  under  the  Grant.     (Sec.  16.) 

In  addition  there  shall  be  an  annual  audit  of  the  accounts  of  the 
Company  by  certified  public  accountants  selected  bv  the  Citv 


\i 


256 


Seevicb  At  Cost  Agreements 


Service  At  Cost  Agreements 


257 


Comptroller  and  the  Company  and  such  accountants  shall  make 
a  formal  written  report  thereon,  the  expense  of  such  audit  to 
be  paid  as  an  operating  expense.     (Sec.  16.) 

Philadelphia 

The  method  of  keeping  accounts  is  prescribed  by  the  Pennsyl- 
vania Public  Service  Commission. 

The  Supervising  Board  shall  prescribe  the  form  of  statements 
to  be  submitted  at  three-month  periods  in  which  shall  be  set 
forth  — 

Gross  Revenues  and  deductions  therefrom  exclusive  of  expenses 
or  fixed  charges  incurred  prior  to  the  date  that  the  Grant  shall 
become  effective; 

The  amount  of  New  Capital  upon  which  the  Company  is 
entitled  to  a  return,  together  with  Sinking  Fund  payments  for 
the  period  covered  by  the  reports ; 

The  Cost  of  Transit  Facilities  owned  by  the  City  upon  which 
the  Company  shall  pay  rental,  and  the  amount  of  such  rental,  as 
well  as  Sinking  Fund  charges,  less  any  portion  of  such  Transit 
Facilities  withdrawn  from  rental  and  the  amount  of  rental  and 
Sinking  Fund  charges  thereon ; 

The  amount  of  Capital  Stock  of  the  Company  authorized  and 
issued,  less  any  installments  remaining  unpaid  on  any  shares. 

Such  statements  must  be  certified  by  the  Supervising  Board 
and  delivered  to  the  City  Comptroller.     (Art.  23;  Sec.  1.) 

A  complete  audit  of  all  of  the  accounts  of  the  Company  in  the 
form  prescribed  by  the  Director  of  City  Transit,  shall  be  made  by 
auditors  appointed  and  paid  by  the  City,  as  of  the  date  when  the 
Grant  becomes  effective,  and  thereafter  the  books  and  accounts 
of  the  Company  shall  be  audited  annually  by  accountants  mutu- 
aUy  agreed  upon  by  the  City  and  the  Company,  and  such  audit 
ihall  be  published  and  submitted  both  to  the  City  and  the  Com- 
pany, the  cost  thereof  to  be  paid  out  of  Gross  Revenues.  For 
the  purpose  of  the  audit  the  City  shall  have  access  to  the  books, 
records  apd  memoranda  of  the  Company  and  may  examine  offi- 
cers and  employees  of  the  Company  under  oath.  (Art.  23,  Sec.  2.) 
If  the  public  accountants  or  the  City  object  to  any  charges 
appearing  in  the  books  of  the  Company,  or  the  public  account- 
ants or  the  Company  object  to  any  charges  appearing  in  the 


accounts  of  the  City  as  to  the  cost  of  the  City's  Transit  Facili- 
ties, the  Supervising  Board  shall  have  the  power  for  the  pur- 
pose of  the  contract,  to  determine  the  propriety  of  such  charges. 
(Art.  23,  Sec.  2.) 

Denver  Service  at  Cost  Ordinance 
All  general  accounts  shall  be  kept  in  the  manner  prescribed  by 
the  Uniform  System  of  Accounts  of  the  Interstate  Commerce 
Commission.     (x\rt.  3;  Sec.  9.) 

The  Board  of  Tramway  Control  may  inspect  and  audit  all 
receipts,  disbursements,  prices,  payrolls,  salaries  of  all  officers, 
time  cards,  papers,  books,  documents  and  property  of  the  Com- 
pany "used  and  useful  in  the  public  service."  (Art.  3;  Sec.  5.) 

Denver  Elastic  Six-cent  Fare  Ordinance 

No  provisions. 

Minneapolis 

The  Company  shall  keep  its  accounts  in  the  manner  prescribed 
by  the  Uniform  System  of  Accounts  of  the  Interstate  Commerce 
Commission,  as  modified  to  meet  the  requirements  of  the  Grant  or 
subsequent  ordinances.      (Sec.  20.) 

The  Company  shall  furnish  to  the  City  Council  sworn  monthly 
report  of  earnings  and  expenses,  and  such  other  statements  as  the 
City  Council  may  direct,  and  such  statements  shall  be  received  as 
prima  facie  evidence  before  any  court  or  other  tribunal  in  any 
controversy  between  the  City  and  the  Company.  The  Company 
shall  also  furnish  annual  reports  of  operation  and  additions  to 
Capital  Value.     (Sec.  20.) 

The  receipts  and  expenditures  of  the  Company  shall  be  audited 
annually  by  a  certified  public  accountant  selected  by  the  City  who 
shall  submit  a  written  report  thereon,  the  expense  of  such  audit 
to  be  borne  by  the  Company  and  paid  from  the  Gross  Receipts. 
(Sec.  20.) 

The  books,  records  and  accounts,  of  the  Company  shall  at  all 
times  be  open  to  the  Street  Railway  Supervisor  for  the  purpose 
of  verifying  statements  and  reports  made  by  the  Company  to  the 
City  under  the  terms  of  the  Grant.     (Sec.  20.) 


ti 


ii 


258 


Sekvice  At  Cost  Agreements 


If  either  the  Street  Eailway  Supervisor  or  the  certified  Public 
Accountant  disapproves  of  any  voucher  or  expenditure,  the  man- 
ner of  keeping  accounts  or  other  matters  effecting  the  keeping  of 
the  books  or  records  of  the  Company  or  the  manner  in  which  the 
.  Company  complies  with  the  provisions  of  the  Grant,  and  the  mat- 
ter 18  not  adjusted  by  the  Company  to  their  satisfaction,  the  mat- 
ters m  dispute  shall  be  submitted  to  arbitration.  (Sees.  5  and  20.) 

S.— METHODS  AND  PRACTICES 

Chicago 
Expenditures  for  Extensions,  Betterments  and  Permanent  Im- 
provements of  more  than  $5,000  shall  be  let  by  contract.     (Sec. 
6.) 

The  Company  is  required  to  keep  such  of  its  property  fully 
insured  in  responsible  insurance  companies  as  is  usually  kept 
insured  by  similar  companies.     (Sec.  21.) 

It  is  provided  that  the  Company  shall  develop  the  "  zone  system 
of  car  operation  "  by  means  of  which  service  on  long  through 
lines  may  be  tapered  off  according  to  the  traffic  demands,  by  estab- 
lishing short  line  terminal  routes.     (Exhibit  B.) 

The  Company  shall  establish  the  skip-stop  wherever  possible. 
(Exhibit  B.) 

It  is  recommended  that  distance  between  the  center  lines  of 
surface  tracks  be  nine  feet  eight  and  one-half  inches  and  that  when 
transit  tracks  are  laid  on  the  surface  the  distance  should  be 
twelve  fetft.     (Exhibit  B.) 

Grooved  rails  weighing  129  pounds  to  the  yard  shall  be  used 
on  all  new  construction,  except  in  streets  not  occupied  by  track 
at  the  time  that  Grant  takes  effect,  where  if  the  Commissioner 
of  Public  Works  approves,  high  Tee  rails  may  be  used,  but  may 
not  extend  beyond  the  level  of  the  pavement.     (Exhibit  B.) 

Cast  welded  or  electrically  welded  joints  or  a  type  which  will 
give  an  equally  smooth  joint  shall  be  used.  Joints  must  have  a 
current  carrying  capacity  equaLto  that  of  the  rail.     (Exhibit  B.) 

A  method  of  providing  against  electrolysis  is  provided.  (Ex- 
hibit B.) 


Service  At  Cost  Agreements 


!5D 


Detailed  specifications  as  to  paving  are  provided.    (Exhibit  B.) 

General  plans  for  the  construction  and  equipment  of  power 
houses  and  auxiliary  buildings  are  provided.     (Exhibit  B.) 

All  cars  shall  be  of  the  double-tnick  type  with  a  carrying 
capacity  of  at  least  40  passengers,     (Exhibit  B.) 

Kules  and  regulations  for  car  heating  and  for  car  equipment 
are  provided.     (Exhibit  B.) 

Philadelphia 

The  Supervising  Board  has  the  right  to  limit  and  revoke  the 
right  of  the  Company  to  permit  the  use  of  the  City's  cars  and  sta- 
tions for  advertising  and  vending  purposes,  and  shall  approve 
all  contracts  for  such  privileges.     (Art.  17.) 

The  Company  is  obliged  to  keep  insured  against  fire  and  other 
usually  insurable  accident  or  contingency,  all  property  of  the 
City's  system  to  an  extent  to  be  determined  by  the  Supervising 
Board  and  this  may  be  effected,  with  the  approval  of  the  Board 
by  establishing  an  Insurance  Fund  out  of  Gross  Revenues. 
(Art.  25.) 

The  Supervising  Board  is  given  complete  authority  to  inspect 
work  and  materials  in  connection  with  the  operation  and  main- 
tenance of  both  the  City's  and  the  Company's  system.     (Art.  M.) 

Denver  Service  at  Cost  Ordinance 

"  The  Board  shall  hear,  determine  and  act  upon  all  complaints 
criticism  and  suggestions  as  to  Tramway  service  on  the  City 
lines  which  may  not  have  been  disposed  of  by  the  the  Company." 
(Art.  3,  Sec.  6.)       . 

Denver  Elastic  Six-cent  Fare  Ordinance 
Ko  provisions. 

Minneapolis 

The  Grant  covers  the  operation  of  surface  cars  on  tracks  only. 
(Sec.  2.) 

The  system  shall  be  operated  by  overhead  trolley  or  such  other 
system  as  the  City  Council  may  approve.     (Sec.  2.)     " 

All  construction  work  in  streets,  alleys  and  public  places  shall 
be  done  under  the  supervision  of  the  City  Engineer  under  regula- 
tions adopted  by  the  City  Council.     (Sec.  2.) 


» 


260 


Sebvice  At  Cost  Agreements 


Service  At  Cost  Agreements 


261 


The  City  Council  may  require  the  elimination  of  trolley  poles 
and  the  siis|>ension  of  trolley  wires  from  wires  attached  to  build- 
ings, when  perniii-sion  can  be  secured  from  the  owners  thereof. 
(Sec.  2.) 

The  Company  is  required  to  construct  and  reconstruct  its  pay- 
as-you-eiiter  cars,  so  that  there  shall  be  exits  and  entrances  at 
both  ends  and  through  the  sides.     (Sec.  2.) 

Tracks  shall  be  laid  substantially  in  the  center  of  the  streets 
and  when  but  one  track  is  laid  it  shall  be  placed  in  proper  position 
for  dou])le  track  construction.     (Sec.  27.) 

Tracks  in  unpaved  streets  shall  be  laid  with  modern  low  tee 
rails  weighing  not  less  than  80  pounds  to  the  yard  and  in  paved 
streets  with  modern  high  tee  rails  weighing  not  less  than  90 
pounds  to  the  yard.  On  curves  and  in  special  work,  approved 
standard  girder  rail  may  be  used.     (Sec.  27.) 

The  Company  shall  at  all  times  keep  buildings,  cars  and  other 
insurable  property  insured  against  fire  in  responsible  insurance 
companies,  or  may  with  the  approval  of  the  City  Council  main- 
tain an  insurance  fund  for  the  purpose.     (Sec.  29.) 

The  location  of  ear  barns,  shops,  waiting  rooms  and  terminals 
shall  be  subject  to  the  approval  of  the  City  Council.     (Sec.  4.) 

«.— USE  OF  TRACKS  AND  FACILITIES  BY  OTHER  COMPANIES 

Chicago 
The  Company  may  enter  into  contract  with  connecting  sub- 
urban and  intenirban  companies  for  the  operation  of  freight  and 
express  cars  of  such  companies  over  the  Company's  tracks,  such 
contracts  to  be  subject  to  the  approval,  by  ordinance  of  the  City 
Council     (Sec.  20.) 

Philadelphia 
The  City  shall  have  the  power  to  fix  and  the  Supervising 
Board  shall  recommend,  the  terms  and  conditions  upon  which 
lines  outside  the  City  constructed  by  private  capital  may  be  leased 
or  operated  4)y  the  Company,  and  upon  which  such  companies 
may  use  the  Transit  Facilities  operated  by  the  Company.  (Art. 
31,  Sec.  11.) 


Denver  Service  at  Cost  Ordinance 

The  ordinance  contains  no  provisions  as  to  the  use  of  tracks 
and  facilities  by  other  companies,  except  that  in  the  event  of  the 
purchase  of  the  Company's  property  by  the  City,  agreements 
for  such  use  made  by  the  Company  and  then  effective  shall  be 
continued.     (Art.  12,  Sec.  8.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Minneapolis 

The  City  reserves  the  right  to  authorize  tlie  use  of  the  Com- 
pany's track  and  overhead  by  any  suburban  railway  and  to  compel 
the  Company  to  furnish  power  for  its  operation.  Routes  and 
schedules  shall  be  fixed  by  agreement  between  the  Company  and 
such  surburban  railways.  If  they  cannot  agree,  the  City  Council 
shall  fix  such  routes  and  schedules.    (Sec.  21.) 

Compensation  "  representing  not  less  than  the  reasonable  value 
of  the  power  furnished  by  the  Company  and  a  fair  share  of  the 
cost  of  maintenance  of  the  tracks  and  equipment,  taking  into  ac- 
count the  advantages  and  disadvantages  of  the  entry  of  said  line 
into  the  city,''  shall  be  fixed  by  agreement  between  the  Company 
and  the  suburban  railway.  If  they  cannot  agree,  the  City  Coun- 
cil shall  ^x  it,  and  if  either  the  Company  or  the  suburban  rail- 
way dissents  from  the  amount  fixed  by  the  City  Council,  the  mat- 
ter shall  be  determined  by  arbitration,  as  shall  other  disputed 
questions  arising  over  the  use  of  such  tracks  and  facilities.  (Sec. 
21.) 

The  City  Council  may  at  any  time  reroute  cars  of  suburban 
railways  so  admitted  and  control  and  regulate  the  carrying  of 
freight  and  express  by  such  suburban  companies.     (Sec.  21.) 

The  Company  is  given  the  right  to  sell  power  to  any  of  the 
properties  included  in  the  Twin  City  Rapid  Transit  Co.,  or  to 
other  suburban  and  interurban  railways,  at  a  price  which  shall 
at  least  equal  the  cost,  including  all  overhead  charges  as  specified 
by  the  Grant.     (Sec.  25.) 

The  Company  has  the  right  to  have  its  cars  repaired  in  the  car 
shops  of  the  St.  Paul  City  Railway  Company,  and  shall  pay  for 


If 


262 


Sehvice  At  Cost  Agreements 


such  work  the  actual  cost  thereof,  including  a  fair  allowance  for 
overhead.    (Sec.  25.) 

7.-- MACHINERY  OF  CONTROL 

(a)  Power,  Where  Lodged 

Chicago 
The  control  and  management  of  the  Company  is  lodged  in  the 
Board  of  Trustees  subject  to  the  provisions  of  the  Grant  and 
certain  powers  and  authority  remaining  with  the  City  Council, 
with  the  City  Engineer  and  the  Commissioner  of  Public  Works 
of  the  City.  * 

Philadelphia 
Control,  under  the  Grant,  is  variously  distributed.  The  Penn- 
sylvania Public  Service  Commission  has  control  over  fares  and 
over  Extensions,  Betterments  and  Permanent  Improvements  to 
Transit  Facilities  owned  by  the  Company;  The  City  Council 
has  control  over  Extensions,  Betterments  and  Permanent  Im- 
provements connected  with  the  Transit  Facilities  owned  by  the 
City;  the  Supervising  Board  has  control  over  service,  mainte- 
nance and  the  details  of  operation.  (Art.  31.) 

Denver  Service  at  Cost  Ordinance 

Control  is  lodged  in  the  City,  to  be  exercised  by  the  Board  of 
Tramway  Control.     (Art.  3,  Sec.  1.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
Power  to  increase  or  decrease  fares  in  relation  to  increases  or 
decreases  in  wages,  is  lodged  in  the  City  and  exercised  by  the 
Board  of  Control. 

Minneapolis 
The  power  of  control  and  regulation  is  lodged  in  the  City,  to 
be  exercised  as  to  matters  connected  with  work  in  the  streets  by 
the  City  Engineer,  with  the  operation  of  the  system  through 
parks  by  the  Board  of  Park  Commissioners,  and  as  to  all  other 
matters  by  the  City  Council.  The  City  iStreet  Eailway  Super- 
visor acts  in  an  advisory  and  administrative  capacitv  only  (Sec** 
2,  4,  5,  27,  etc.) 


Service  At  Cost  Agreements 


263 


if 


(b)  Administration 

Chicago 

The  affairs  of  the  Company,  which  company  shall  not  be  for 
"  pecuniary  profit,"  are  administered  by  a '  Board  of  nine 
Trustees.  These  shall  be  residents  of  Chicago  or  the  suburban 
territory  in  which  the  Company  is  permitted  to  operate,  shall  be 
men  of  business  ability,  public  spirit  and  qualified  to  direct  the 
affairs  of  the  Company,  shall  not  own  any  of  the  bonds  or  other 
obligations  of  the  Company  or  be  financially  interested  in  it  except 
in  a  fiduciary  capacity  and  shall  receive  no  other  salary  than  that 
provided  and  permitted  by  the  Grant.  The  first  Board  shall  be 
named  in  a  resolution  of  the  City  Council  and  shall  hold  office 
without  classification  until  December  31,  1927.  Prior  to  that 
date,  however,  they  shall  be  divided,  by  lot  or  otherwise  into 
three  classes  of  three  each.  The  first  class  shall  hold  office  until 
December  31,  1928;  the  second  class  until  December  31,  1929, 
and  the  third  class  until  December  31,  .1930.  Their  successors 
shall  be  elected  for  terms  of  three  years.  The  election  shall  be 
by  the  Company  from  a  list  persented  by  the  City  Council. 
Vacancies  by  death,  resignation,  removal,  or  otherwise  than  by 
expiration  of  the  term  of  office  shall  be  filled  by  the  Board. 
(Sec.  1.) 

The  Company  agrees  not  to  change  its  charter  or  method  of 
selecting  Trustees,  without  the  consent  of  the  City.     (Sec.  1.) 

The  salaries  of  the  Trustees  shall  be  $5,000  each,  annually, 
but  in  addition  to  their  salaries  as  trustees  they  may  receive  other 
compensation  for  acting  as  officers  of  the  Company,  or  members 
of  the  Executive  Committee  of  the  Board,  which  Board  shall  have 
direct  charge  of  the  operation  and  management  of  the  System. 
(Sec.  1.) 

Philadelphia 

The  Supervising  Board  shall  consist  of  three  members,  the 
Director  of  City  Transit,  who  shall  represent  the  City,  a  member 
to  be  appointed  by  the  Company,  and  a  Chairman  to  be  appointed 
by  the  Mayor  of  Philadelphia  and  the  President  of  the  Com- 
pany, for  a  term  of  four  years.  If  the  Mayor  and  the  President 
fail  to  agree  upon  Chairman,  the  Board  shall  function  with  two 
members,  and  in  case  of  disagreement,  a  temporary  arbitrator 


264 


Sebvicb  At  Cost  Agreements 


iii 


I 


shall  be  appointed  by  the  two  members  of  the  Board.  If  these 
fail  to  agree  upon  the  appointment,  either  the  City  or  the  Com- 
pany may  upon  five  days  notice  apply  to  the  Pennsylvania  Public 
Service  Commission,  which  shall  then  make  the  appointment. 
The  arbitrator  shall  be  skilled  in  the  matter  concerning  which 
there  is  disagreement.  The  Board  shall  maintain  an  office  in  the 
City  of  Philadelphia,  shall  employ  necessary  assistants  and  incur 
necessary  expenses,  and  ^x  the  salaries  of  such  assistants  and 
employees.  The  salaries  of  Board  members  shall  be  fixed  at  the 
time  of  their  appointment,  that  of  the  City  Member  to  be  fixed 
by  the  City  Council,  that  of  the  Company  Member  to  be  fixed 
by  the  Company  and  that  of  the  Chairman  to  be  fixed  by  the 
Mayor  and  the  President  of  the  Company.  The  salary  of  the 
City  Member  shall  be  paid  by  the  City;  all  other  salaries  and 
expenses  shall  be  paid,  either  out  of  Gross  Revenues  as  an  operat- 
ing expense  or  out  of  Capital  Account,  in  a  proportion  to  be  deter- 
mined by  the  Supervising  Board.     (Art.  31,  Sees.  1  and  2.) 

Denver  Service  at  Cost  Ordinance 
The  Board  of  Tramway  Control  consists  of  three  members,  one 
appointed  by  the  Mayor,  for  a  term  coincident  with  that  of  the 
Mayor,  one  appointed  by  the  City  Council  for  a  term  of  five 
years,  and  one  appointed  by  the  Company  to  serve  at  the  Com- 
pany's pleasure.     The  members  appointed  by  the  Mayor  and  the 
City  Council  shall  be  taxpayers  in  and  residents  of  Denver  for  at 
least  ^we  years,  shall  own  none  of  the  securities  of  the  Company 
or  its  affiliated  or  subsidiary  companies,  shall  not  have  any  busi- 
ness connection  with  the  Company  and  shall  be  qualified  by  edu- 
cation, training  and  experience  to  discharge  their  duties.    Vacan- 
cies shall  be  fiUed  in  the  manner  of  the  original  appointment 
within  fifteen  days  of  the  date  of  such  vacancy  and  if  not  so  filled 
by  the  party  having  the  appointment,  shall  be  filled  by  the  other 
two  members  of  the  Board.     The  Mayor,  City  Council  and  the 
Company  shall  detei-mine  the  amount  of  compensation  of  the 
members, of  the  Board  to  be  pdd  together  with  the  expenses  of 
City  supervision,  as  a  cost  of  service,  but  such  compensation  shall 
not  exceed  $500  a  month.    The  decision  of  any  two  members  shall 
be  the  decision  of  the  Board.     (Art.  3.) 


Service  At  Cost  Agreements 


265 


Denver  Elastic  Six-cent  Fare  Ordinance 
A  Board  of  Control  consisting  of  three  members,  each  with  a 
term  of  four  years,  subject  to  removal  by  the  appointing  power 
shall  be  appointed  as  follows :  One  by  the  Mayor,  one  by  the  City 
Council  and  one  by  the  Company.  Vacancies  to  be  filled  in  the 
manner  of  the  original  appointment.  If  compensation  is  to  be 
paid,  each  of  the  appointing  powers  shall  determine  and  pay  the 
compensation  of  the  member  appointed  by  it.  The  appointees  of 
the  Mayor  and  the  City  Council  may  be  City  officers,  if  the 
appointing  power  so  desires.  The  Board  may  at  all  times  act  by 
a  majority  of  its  members.     (Sec.  4.) 

Minneapolis 

All  orders  or  requirements  of  the  City  Council  as  to  matters 
affecting  the  service  of  the  Company,  shall  be  made  in  writing, 
and  shall  become  effective  twenty  days  after  notice  has  been  served 
upon  the  Company,  unless  within  ten  days  after  the  serving  of 
such  notice,  the  Company  shall  file  with  the  Street  Railway  Super- 
visor, or  other  City  officer  designated  by  the  City  Council,  objec- 
tion thereto.  In  case  such  objection  is  filed,  the  City  Council 
shall  at  the  end  of  ten  days  or  as  soon  thereafter  as  convenient, 
hold  a  public  hearing  at  which  the  Company  shall  be  heard. 
Orders  made  after  such  hearing  and  all  orders  to  which  the  com- 
pany files  no  objection  shall  be  binding  upon  the  Company 
and  enforceable.  Objection  may  be  made  to  orders  of  the  City 
Council  by  the  Company,  on  the  grounds  that  they  impair  the 
cost  of  service.     (Sec.  4.) 

Pending  action  of  the  City  Council,  the  Street  Railway  Super- 
visor may  temporarily  approve  changes  in  schedules  and  routes, 
but  such  changes  shall  remain  in  force  until  changed  by  the  City 
Council.     (Sec.  4.) 

The  City  Council  may  require  the  Company  to  submit  45  days 
prior  to  the  first  day  of  any  year,  a  budget  of  operating  expenses, 
and  the  Company  may  thereafter  any  time  file  supplementary 
budgets  thereto.  The  City  Council  is  required  within  20  days 
after  the  receipt  of  such  budget  or  supplements  to  approve  or 
disapprove  them  and  in  case  of  disagreement  the  matter  shall  be 
arbitrated.     (Sec.  5.) 


Ml 


<("l"1[Pf»BfH" 


266 


Service  At  Cost  Agreements 


Service  At  Cost  Agreemexts 


In  relation  to  Extensions,  Betterments  and  Permanent  Improve- 
ments see  C.-3.-(b). 

The  City  Council  shall  appoint  a  City  Street  Railway  Super- 
visor who  shall  act  as  the  technical  advisor  to  the  Council,  and 
who  shall  either  be  experienced  in  the  operation  of  street  rail- 
ways, or  have  a  "  broad  general  knowledge  of  the  business  "  and 
other  special  qualifications  for  the  work.  The  salary  and 
expenses  of  the  Supervisor  shall  be  paid  by  the  City,  and  the 
Company  shall  reimburse  the  City  therefor.  lie  is  authorized 
to  appoint  such  assistants  as  he  may  deem  necessary-,  subject  to 
the  approval  of  the  City  Council.  His  salary  and  \hose  of  his 
assistants  shall  be  fixed  by  the  City  Council,  which  shall  also  pro- 
vide him  with  suitable  quarters.  Vacancies  in  the  office  are  filled 
by  the  Council,  which  may  designate  any  officer  or  employee  of  the 
City  to  act  in  his  stead,  pending  the  filling  of  the  vacancy. 
(Sec.  5.) 

The  City  may  enforce  its  orders  as  to  service  by  a^y  suitable 
proceedings  and  is  specifically  empowered  to  impose  penalties  by 
fine  and  imprisonment  and  to  enforce  its  orders  by  mandamus  and 
injunction.     (Sec.  4.) 

In  the  case  that  the  Company  fails,  neglects  or  refuses  to  com- 
ply with  any  order  of  the  City  Council,  requiring  it  to  continue  to 
operate  any  existing  line,  or  to  construct,  equip  or  operate  any 
mew  line,  the  return  to  the  Company  on  Initial  Value  shall  be 
reduced  to  six  per  cent  and  the  return  over  and  above  the  actual 
interest  on  Added  Value  shall  be  withheld  from  the  date  of  com- 
pletion fixed  in  the  order  until  such  time  as  the  order  shall  be 
complied  with,  not  including,  however,  such  time  as  may  have 
been  consumed  in  arbitration.    If  the  Company  shall  have  acted 
tmllfuUy  or  in  had  faith  in  such  refusal,  failure  or  neglect,  then 
the  time  consumed  in  arbitration  shall  not  be  deducted  from  the 
time  during  which  the  reduction  in  return  shall  prevail.     Sums 
so  deducted  from  return  shall  be  paid  into  such  of  the  funds  pro- 
vided by  the  ordinance,  as  the  City  Council  may  direct.    Deduc- 
tions so  niade  shall  be  considered  by  both  the  City  and  the  Com- 
pany, as  liquidated  damages  for  such  refusal,  failure  and  neglect 
(Sec.  10.) 


267 


For  provisions  as  to  forfeiture  of  the  Grant,  upon  neglect  of  the 
orders  of  the  City  Council  see  A.-3. 

It  is  provided  that  the  provisions  of  the  Grant  providing  for 
enforcement  shall  be  additional  remedies  only  and  shall  not  pre- 
evnt  the  City  or  the  Company  from  resorting  to  the  Courts  and 
enforcing  rights,  duties  and  obligations  by  mandamus,  injunction 
or  other  appropriate  legal  measures.    (Sec.  33.)  ' 

(c)  Powers  and  Duties  of  Administrative  Body  or  Officers 

Chicago 
The  entire  control  and  management  of  the  Company  and  its 
affairs  .s  vested  in  the  Board  of  Trustees,  which  Board  is  gov- 
erned and  restricted  by  the  provisions  of  the  Grant  and  general 
police  powers  of  the  city.     (Sec.  1.)  6    "  «" 

Philadelphia 
The  Supervising  Board 
ShaJl  reiH>rt  to  Councils  on  the  advisability,  reasonableness  and 
nece  sity  of  Extensions,  Betterments  and  Permanent  Improve- 
ments, including  the  review  of  cost  estimates  presented  by  the 
Company,  or  the  compilation  of  such  cost  estimates,  and  the 
review  or  preparation  of  plans  covering  the  financing  of  the  cost 
of  Transit  Facilities  provided  by  the  Company  ■ 

reatir!Il'TJ°  p'"*^  '"'''^^  ^  tri-monthly  financial  statements 
required  of  the  Company.     (Sec.  C.-4.-(c)); 

Shall  take  proceedings  before  the  Public  Service  Commission 
to  conipel  the  construction  of  Extensions,  Betterments  .uIfZZ 
nent  Improvements  in  connection  with  the  Company's  system- 

Tra!;     f'^T^  '"  .•^•^^PP'-^^^   Pl«»«  for  the  construction   of 
Transit  Facilities  either  by  the  City  or  the  Company,  and  shall 

inspect  work  and  materials  provided  by  the  Company  therefor 
except  that  the  Board  may  not  alter  the  location  or  curtail  or  p^^ 
pone  the  construction  of  any  line  which  has  been  authorized  bv 
the  Uty,  by  a  vote  of  the  people,  or  ordinance  of  the  City  Coun- 


268 


Service  At  Cost  Agreements 


Shall  pass  upon,  adopt  or  alter,  rules  and  standards  for 
maintenance,  routing,  and  adequacy  and  suitibility  of  equipment ; 

Shall  approve  the  terms  of  contracts  for  power; 

Shall  approve  the  term  under  which  the  Company  may  grant 
permits  for  show  windows,  entrances  and  other  easements,  or 
privileges  in  connection  with  the  operation  of  Transit  facilities; 

May  establish,  omit  or  change  stations  and  stopping  places ; 

Shall  file  with  the  Pennsylvania  Public  Service  Commission 
schedules  of  fares  and  charges  in  compliance  with  the  terms  of 
the  Grant; 

Shall  decide  upon  the  amount  and  the  investment  of  Deprecia- 
tion Funds; 

Shall  check  and  approve  the  amount  to  be  set  aside  from  gross 
revenues  annually  for  damages  incurred  by  the  Company,  which 
amount  shall  represent  the  damages  paid  and  for  which  the  Com- 
pany is  liable ; 

Shall  require  the  Company  to  have  legally  determined  its  lia- 
bility for  any  item  concerning  which  the  Board  is  in  doubt,  in- 
cluded* in  operating  expenses,  taxes  and  other  public  charges,  or 
fixed  charges,  which  are  to  be  paid  from  Gross  Revenue.  In  such 
determination  the  City  is  empowered  to  intervene,  or  to  make  the 
original  application,  in  which  application  the  Company  agrees 
to  join; 

Shall  act  as  a  Board  of  Arbitrators  in  case  of  disagreement  be- 
tween the  City  and  the  Company,  under  the  provisions  of  the 
Grant ; 

Shall  recommend  to  City  Councils,  the  terms  and  conditions 
upon  which  the  Company  shall  lease  or  operate  lines  constructed 
by  private  capital  outside  the  City,  and  the  terms  and  conditions 
which  outside  companies  may  use  the  facilities  of  the  Company. 
(Art.  31;  Sec.  3.) 

Shall  hold  public  hearings  on  all  petitions  for  new  lines  and 
extensions,  additions  to  Transit  Facilities,  proposals  to  change 
fares,  petitions  for  routing,  re-routing  or  through  routing,  and 
such  other  matters  as  the  Councils  may  direct.     (Art.  31 ;  Sec 
4.) 

Shall  select  the  depositories  for  the  Trust  funds  over  which 
the  Board  has  control,  which  funds  shall  be  annually  audited  by 


Service  At  Cost  Agreements 


269 


public  accountants  selected  by  the  City  and  the  Company.  (Art, 
31;  Sec.  5.) 

The  Board  shall  act  through  the  decision  of  two  of  its  mem- 
bers, except  that  if  there  be  no  Chairman  and  an  Arbitrator  be 
appointed,  the  decision  of  the  Board  in  the  matter  to  consider 
which  the  Arbitrator  was  appointed  may  be  by  one  member  and 
the  Arbitrator.     (Art.  31;  Sec.  4.) 

The  decision  of  the  Board  in  matters  assigned  to  it  by  the 
Grant,  shall  be  final  except  that  in  the  event  that  either  the  City 
or  the  Company  may  claim  that  the  questions  is  one  for  the 
determination  of  the  Pennsylvania  Public  Service  Commission, 
either  may  appeal  to  such  Commission,  but  until  the  Commission 
decides  the  issue,  Company  is  required  to  obey  the  orders  of  the 
Board.     (Art.  31;  Sec.  6.) 

Denver  Service  at  Cost  Ordinance 

The  Board  of  Tramway  Control  — Shall  control,  regulate  and 
supervise  the  City  service  of  the  Company,  including  the  fixing  of 
schedules,  the  regulation  of  transfers,  and  the  fixing,  changing  and 
extension  of  routes.     (Art.  3;  Sec.  1.) 

Keep  informed  as  to  the  cost,  quantity  and  quality  of  service 
furnished,  receipts  and  disbursements,  vouchers  of  expenditures, 
leases  and  rentals.  For  this  purpose  the  Board  of  Tramway  Con- 
trol is  given  access  to  the  books  and  records  of  the  company  for 
the  purpose  of  auditing  and  inspecting  receipts,  disbursements, 
leases,  contracts,  property,  and  other  relevant  matters.  (Art. 
3;  Sec.  5.) 

The  Board  shall  hear,  determine  and  act  upon,  complaints, 
criticism  and  suggestions  not  disposed  of  by  the  Company.  (Ai*t. 
3;  Sec.  6.) 

Must  approve  upon  all  expenditures  for  Extensions,  Better- 
ments and  Improvements,  if  they  exceed,  in  any  one  year,  one- 
half  of  one  per  cent  of  Stipulated  Fair  Value,  before  such  ex- 
penditures can  be  added  to  Stipulated  Fair  Value.     (Art.  3 ;  Sec. 

7.) 

Must   approve   expenditures   for   Operating   Expenses    which 
exceed  for  the  year,  by  3  per  cent,  the  cost  of  the  service,  for  the 
18 


t 


I  t 


270 


Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


2X1 


l> 


preceding  six  months,  if  such  excess  is  to  be  added  to  the  cost  of 
the  service.     (Art.  3 ;  Sec.  7.) 

Shall  determine^the  amount  and  the  disposition  of  Renewals 
and  Depreciation  Keserve  Fund,  and  if  the  Company  desires  to 
mvest  any  unexpended  balances  in  such  fund,  must  approve  the 
negotiable  securities  in  which  such  balance  is  invested      fArt 
•>;  See.  1.)  ^       * 

Shall  increase  or  decrease  the  fares  in  effect  in  accordance  with 
the  condition  of  the  Fare  Control  Fund  and  in  the  manner 
provided  in  the  Ordinance.  (Art.  7;  Sees.  3  and  4  ) 

Shall  decide  as  to  the  carriage  of  materials  and  supplies  bv 
the  Company  for  the  City  and  the  public,  approving  the  time 
at  which  such  transportation  can  be  carried  on,  and  the  routes 
which  n.ay  be  used  for  the  purpose,  and  the  charges  to  be  made 
therefor.     (Art.  9;  Sec.  1.) 

Sh.ll  at  all  times  have  access  to  the  books  and  records  of  the 
Company,  relating  to  Interurban  lines.     (Art.  12;  Sec.  7.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
The  Board  of  Control   shall  have  the  power  to   increase  or 
decrease  the  fares  charges  by  the  Companv  in  accordance  with 
wages  paid  as  provided  b:^'  the  Ordinance.     (Sec.  4. ) 

The  records  and  accounts  of  the  Company  relative  to  wages  paid 
and  fare  receipts  shall  be  open  to  the  Board  of  Control,  .nd  the 
Company  shall  furnish  to  such  Board  all  information  concerning 
wages  paid  and  fare  receipts.     (Sec.  4.) 

The  Board  is  empowered  to  investigate  and  shall  keep  itself 
mformed  as  to  wages  paid  to  street  railway  employees  in  the  cities 
of  ht  Louis,  Omaha,  Kansas  City,  Minneapolis  and  St    Paul 
(hee.  4.)  *  ' 

Minneapolis 
The  City  Council  — 

May   designate    additional    streets    in   which    Companv    may 
operate.     (Sec.  2.)  '        ^ 

May  authorize  changes  in  motive  power  or  methods  of  electrical 
transmission.     (Sec.  2.) 

May  regulate  carriage  of  mail  and  packages.     (Sec.  2.) 


May  require  elimination  of  poles  and  attachment  of  suspension 
wires  to  buildings.     (Sec.  2.) 

Shall  determine  the  terms  under  which  the  Company  shall 
continue  to  operate  after  the  grant  has  expired.     (Sec.  2.) 

Controls  and  regulates  the  service.     (Sec.  2.) 

Appoints,  removes  and  controls  the  Street  Railway  Supervisor. 
(Sec.  5.) 

Must  approve  or  disapprove  the  Operating  Budget  and  sup- 
plements thereto.     (Sec.  5.) 

Exercises  jurisdiction  over  purchases  and  contracts  therefor 
and  payments  of  account  of  damages.     (Sec.  5.) 

Orders  at  its  own  volition,  or  approves  proposals  by  the  Com- 
pany, for  Extensions,  Betterments  and  Permanent  Improvements. 
(Sec.  7.) 

Must  authorize  all  additions  to  Capital  Value,  and  securities 
issued  on  account  thereof,  both  as  to  interest  paid  and  as  to  terms. 
(Sees.  9,  13,  14,  15  and  16.) 

Administers  Amortization  Fund,  decides  upon  the  amount  to 
be  paid  into  Fund  from  Gross  Revenues,  and  from  surplus  in  the 
Stablizing  Fund,  payments  out  of  Amortization  Fund  and  fixes 
intangible  values.     (Sees.  9,  12,  13  and  17.) 

Decides  on  the  payments  from  Gross  Receipts  to  the  Mainte- 
nance Reserve  Fund.     (Sec.  11.) 

May,  when  authorized  by  State  Legislature,  loan  City  funds 
to  the  Company  for  Extensions,  Betterments  and  Permanent  Im- 
provements, or  guarantee  the  Company's  security  issues  made  on 
account  thereof.     (Sec.  14.) 

Supervises  the  refunding  of  securities,  secured  by  liens  on  the 
Company's  property  made  prior  to  the  taking  effect  of  the  Grant. 
(Sec.  16.) 

Acts  for  the  City  in  the  event  of  the  purchase  of  the  property 
of  the  Company  by  the  City  or  a  licensee  of  the  City.  (Sees.  18 
and  19.) 

Controls  the  use  of  tracks  and  facilities  by  other  companies. 
(Sec.  21.) 

May  construct  for  the  City,  or  authorize  to  be  constructed  a 
central  passenger  station  and  require  and  regulate  its  use. 
(Sec.  22.) 


•WHW" l»i"l 


272 


Service  At  Cost  Agreements 


May  require  the  Company  to  sweep,  clean  and  oil  the  pavement 
between  its  tracks.     (Sec.  26.) 

May,  for  the  purpose  of  reducing  fares,  waive  requirements  as 
to  street  cleaning,  oiling,  sprinkling  and  paving.     (Sec.  26.) 

Shall  require  the  Company  to  keep  its  property  insured  against 
fire.     (Sec.  29.) 

Shall  appoint  the  City  member  of  the  Arbitration  Boards  pro- 
vided for  by  the  Grant.    (  Sec.  31.) 

Shall  act  for  the  City  in  the  enforcement  of  the  provisions  of 
the  ordinance  and  in  case  of  its  forfeiture.  (Sees.  4,  10,  32 
and  33.) 

The  Supervisor  of  Street  Railways  — 

Is  the  technical  advisor  of  the  City  Council.     (Sec.  5.) 

He  shall  keep  informed  as  to  the  character  of  the  service  ren- 
dered, the  condition  of  the  property,  the  need  of  new  lines  and 
extensions,  improvements  in  the  service  and  all  matters  coming 
within  the  jurisdiction  of  the  City  Council  and  shall  report  to 
the  City  Council  thereon.     (Sec.  5.) 

He  shall  perform  such  additional  duties  as  may  be  imposed 
upon  him  by  the  City  Council  or  by  subsequent  ordinances,  not 
inconsistent  with  the  terms  of  the  Grant.     (Sec  5.) 

He  shall  keep  informed  as  to  all  matters  affecting  the  cost, 
quantity  and  quality  of  service,  the  receipts  and  disbursements' 
property  and  equipment,  rate  of  fare,  vouchering  of  expenditures 
and  the  manner  of  keeping  accounts  under  the  Uniform  System 
of  Accounts  of  the  Interstate  Commerce  Commission.     (Sec.  5.) 

He  shall  have  access  at  all  reasonable  times  to  the  books  and 
records  of  the  Company,  necessary  for  use  in  connection  with  the 
performance  of  his  duties.     (Sec.  5.) 

He  shall,  with  the  approval  of  the  City  Council,  appoint  such 
assistants  as  he  may  deem  necessary.    (Sec.  5.) 

He  shall  make,  in  connection  with  any  Extension,  Betterment 
and  Permanent  Improvement,  the  surveys  preliminary  thereto 
as  provided  by  the  Grant.    (Sec.  7.) 

He  ghall  receive  and  certify  to  the  City  Council  if  he  finds  it 
to  be  correct  the  monthly  statement  of  Capital  Expenditures 
required  to  be  made  by  the  Company  under  the  terms  of  the  Grant, 
and  may  within  90  days  after  such  certification  make  necessarv 


i 


Service  At  Cost  Agreements 


273 


corrections  therein,  and  may  annually  after  the  audit  of  the  Com- 
pany's books  and  records  may  make  such  further  corrections  as 
are  shown  to  be  necessary  by  such  audit.     (Sec.  16.) 

He  shall  have  the  right  to  examine  the  books  and  records  of 
the  Company  for  the  purpose  of  verifying  the  reports  required  to 
be  made  by  the  Company  to  the  City  under  the  terms  of  the 
Grant.     (Sec.  20.) 

If  he  disapprove  of  any  voucher,  the  manner  of  keeping  ac- 
counts, or  the  bookkeeping  methods  of  the  Company  and  the  mat- 
ter is  not  adjusted  by  the  Company,  the  dispute  shall  be  arbitrated. 
(Sec.  20.) 

7.—  ARBITRATION 

(a)  Machinery  For 

Chicago 
No  provisions. 

Philadelphia 
If  either  the  Company  or  the  City  shall  desire  to  arbitrate  any 
matter  arising  under  the  Contract,  such  matter  shall  be  submitted 
to  the  Supervising  Board,  sitting  as  a  Board  of  Arbitration. 
(Art.  35.) 

Denver  Service  at  Cost  Ordinance 
Any  matter  of  difference  arising  under  the  provisions  of  the 
ordinance  may  be  submitted  to  arbitration,  by  either  the  City  or 
the  Company.  The  party  desiring  arbitration,  shall  notify  the 
other  party,  stating  the  matter  upon  which  arbitration  is  desired, 
and  naming  its  member  of  the  Arbitration  Board,  which  when 
completed  shall  consist  of  three  members.  Within  five  days  of 
such  notice  the  party  so  notified  shall  select  its  arbitrator,  and  in 
case  it  fails  to  do  so,  the  party  demanding  arbitration  may  do  so. 

The  two  thus  selected  shall  name  the  third  arbitrator,  or  if 
within  five  days  they  fail  to  do  so,  then  either  the  City  or  the  Com- 
pany may  apply  to  the  Judge  of  the  District  Court  of  the  United 
States  for  the  district  in  which  the  City  and  County  of  Denver 
is  located,  for  the  appointment  of  such  third  arbitrator.  In  case 
such  judge  is  disqualified  or  refuses  to  act,  then  any  Judge  for 
the  Circuit  Court  of  Appeals  of  the  United  States  for  the  circuit 


2T4 


Service  x\t  Cost  x\greements 


1 1 


Lt: 


If       f 

J    i; 


in  which  the  City  and  County  of  Denver  is  located  may  upon 
application  of  either  the  City  or  the  Company  make  such  appoint- 
ment.    (Art.  13;  Sees.  1  and  2.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
1*^0  provisions. 

Minneapolis 
All  disputes  arising  between  the  City  and  the  Company  over 
the  interpretation  or  the  application  of  the  provisions  of  the  Grant, 
except  matters  falling  within  the  police  power  of  the  City,  and 
those  especially  exempted  by  the  Grant  shall  be  arbitrated,  on  the 
demand  of  either  the  City  or  the  Company,  and  no  other  action 
for  the  enforcement  of  the  rights  of  either  party,  shall  be  taken 
until  the  question  has  been  arbitrated.  Submission  to  arbitra- 
tion must  be  made  in  the  case  of  any  order  or  demand  of  the  City 
Council,  within  30  days  of  the  date  of  such  order  or  demand,  and 
in  the  case  of  any  other  dispute  within  30  days  of  the  date  when 
such  dispute  arises.     (Sec.  31.) 

The  party  demanding  arbitration  shall  submit  the  name  of  one 
arbitrator  selected  by  it,  together  with  a  statement  of  the  matter 
to  be  arbitrited,  to  the  other  party,  who  shall  within  ten  days  of 
the  receipt  of  such  notice  select  its  Arbitrator  and  so  notifv  the 
first  party.    The  two  shall  within  ten  days  select  the  third  Arb> 
trator  and  if  within  twenty  days  they  are  unable  to  agree  upon 
such  third  Arbitrator,  he  shall  be  named  by  a  majority  of  the 
members  of  the  District  Court  of  Hennepin  County  or  any  court 
which  may  succeed  it  and  exercise  like  jurisdiction.     The  Board 
by  a  majority  shall  determine  the  question  submitted  to  it  within 
thirty  days,  unless  its  members  unanimously  agree  upon  an  exten- 
sion oi  time.    If  the  Board  fails  to  determine  the  matter  within 
a  reasonable  time,  either  party  may  apply  to  the  District  Court 
for  the  removal  of  the  third  Arbitrator  and  the  appointment  of 
a  new  third  Arbitrator,  who  shall  be  selected  in  the  manner  of  the 
original  appointment.     In  the  event  of  the  death  or  disqualifica- 
tion of  any  of  the  arbitrators  his  successor  shall  be  appointed  in 
the  manner  of  the  original  appointment  within  thirty  days  from 
the  date  of  such  event.     (Sec.  31.) 

The  decision  of  the  Board  shall  be  made  in  writing  and  copies 
forwarded  to  both  the  City  Council  and  the  Company.     Either 


^p* 


Service  At  Cost  Agreements 


275 


party  may  then  appeal  to  the  Courts,  which  shall  try  and  deter- 
mine the  case  de  novo,     (Sec.  31.) 

The  Arbitrators  selected  by  the  City  and  the  Company  shall  be 
disinterested  and  reasonably  qualified  to  pass  upon  the  question 
in  dispute.  The  third  Arbitrator  shall  be  disinterested  and 
qualified  by  study  and  experience.  Each  Arbitrator  shall  before 
assuming  his  duties  to  take  oath  that  he  will  fairly  and  impar- 
tially decide  the  question  according  to  the  evidence  and  the  law 
and  equity  applicable,  and  in  accordance  with  the  terms  and  con- 
ditions of  the  Grant.     (Sec.  31.) 

Control  of  service  involved  in  the  fixing  of  headway,  speed,  type 
of  cars,  their  lighting,  heating  and  sanitary  conditions  as  well  as  all 
other  matters  falling  within  the  police  power  of  the  City  are 
exempt  from  arbitration.     (Sec.  31.) 

Arbitrated  is  specifically  provided  for  in  connection  with  certain 
matters  as  follows : 

In  disputes  between  the  Street  Railway  Supervisor  and  the 
Company  involving  the  vouchering  of  expenditures  and  the 
method  of  keeping  accounts  under  the  Uniform  System  of  Accounts 
of  the  Interstate  Commerce  Commission.     (Sec.  5.) 

In  the  event  of  the  disapproval  by  the  City  Council  of  the 
Budget  of  Operating  Expenses  or  supplements  thereto.     (Sec.  5.) 

At  the  request  of  the  employes  in  case  of  a  dispute  over  wages  or 
working  conditions.     (See  H.-l.) 

In  disputes  respecting  the  making  of  Extensions,  Betterments 
and  Permanent  Improvements.     (Sec.  7.) 

In  disputes  as  to  the  rate  of  interest  and  cost  of  refinancing  or 
refunding  bonds  issued  to  retire  bonds  issued  under  mortgages 
placed  upon  property  prior  to  the  taking  effect  of  the  Grant  or  the 
terms  of  exchanging  for  such  prior  securities  new  securities  issued 
under  the  provisions  of  the  Grant.     (Sec.  16.) 

Refusal  of  the  Company  to  make  changes  suggested  either  by 
the  Street  Railway  Supervisor  or  the  Certified  Public  Accountant 
who  shall  each  year  audit  the  books  and  accounts  of  the  Companv, 
in  its  manner  of  keeping  accounts,  other  matters  relating  to  book- 
keeping, or  the  manner  of  its  compliance  with  orders  of  the  City 
Council.     (Sec.  20.) 


276 


Service  At  Cost  Agreements 


Disputes  as  to  the  approval  or  disapproval  of  any  voucher  or 
expenditure  by  the  Street  Railway  Supervisor  or  the  Certified 
Public  Accountant     (Sec.  20.) 

Disputes  as  to  the  use  of  the  Company's  tracks  and  facilities  by 
suburban  railways  and  the  compensation  to  be  paid  therefor. 
(See.  21.) 

Disputes  as  to  the  salaries  paid  to  general  officers  of  the  Com- 
pany.    (Sec.  30.) 

« 

(b)  Powers  of  Arbitration  Board 

Chicago 

1^0  provisions. 

Philadelphia 
See  powers  of  Supervising  Board  (C.-6.-(6)). 

Denver  Service  at  Cost  Ordinance 
The  decision  of  an  Arbitration  Board  is  final  and  binding  upon 
both  parties,  subject  to  the  right  of  either  the  City  or  the  Com- 
pany to  appeal  to  the  Courts.     (Art.  13;  Sec.  1.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Minneapolis 

It  may  adopt  such  procedure  governing  hearings  as  it  may 
deem  proper.     (Sec.  31.) 

It  shall  give  duo  notice  to  each  party  of  all  hearings  and  each 
party  shall  be  entitled  to  be  represented  by  counsel.     (Sec.  31.) 

Both  parties  are  required  to  furnish  such  information  to  the 
Board  as  it  may  require  and  as  is  in  the  possessim  if  such  partv 
(Sec.  31.)  ^     •'  ■ 

It  may  extend  the  time  within  which  it  is  required  to  determine 
any  case  submitted  but  for  not  more  than  30  days.    (Sec.  31.) 


(c)  Penalties 

Ko  provisions. 


Chicago 


Service  At  Cost  Agreements 


277 


Philadelphia 
See  powers  of  Supervising  Board  (C.-6.-(c)). 

Denver  Service  at  Cost  Ordinance 
No  provisions. 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Minneapolis 
If  the  Company  fails  to  comply  with  an  order  of  the  City 
Council  as  sustained  by  a  Board  of  Arbitration  the  return  to  the 
Company  shall  be  reduced  to  six  per  cent  on  Initial  Value  and  it 
shall  receive  no  further  return  on  Added  Value  than  the  interest 
fixed  on  securities  by  the  City  Council  at  the  time  of  their 
issuance.     (Sec.  10.) 

(d)  Expenses  of  Arbitration 

Chicago 
No  provisions. 

Philadelphia 
See  Supervising  Board  (C.-6.-(b)). 

Denver  Service  at  Cost  Ordinance 
The  City  and  the  Company  shall  each  bear  the  expenses  of  their 
own  Arbitrators.     The  expenses  of  the  third  Arbitrator  shall  be 
borne  equally  by  the  City  and  Company.     (Art.  13;  Sec.  3.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Minneapolis 
Paid  as  an  operating  expense.    (Sec.  31.) 

D.  RETURN 

1.— INITIAL  VALUE 

i     Chicago 
The  Original  Capital  Account  (Initial  Value),  as  set  up  by 
the  Grant  as  of  the  date  when  the  Grant  becomes  effective  is  mado 
up  as  follows: 


278 


Service  At  Cost  Agreements 


I 


First,  the  sum  of  $220,114,428.46  (being  the  Capital  Vahie  of 
the  Chicago  Surface  Lines  as  of  June  30,  1916,  plus  the  appraised 
value  of  the  Elevated  Companies  as  of  the  same  date  as  appraised 
by  the  Chicago  Traction  and  Subway  Commission),  plus  addi- 
tions to  the  property  between  that  date  and  the  time  the  Grant 
becomes  effective,  minus  deductions  from  the  property  during  the 
same  period,  both  as  determined  by  the  Board  of  Supervising 
Engineers ; 

Second,  such  sum  as  the  Trustees  shall  determine  shall  be  the 
value  of  the  property  acquired  by  the  Elevated  Companies 
between  June  30,  1916,  and  the  date  when  the  Grant  becomes 
effective,  minus  such  sum  as  the  trustees  shall  determine  to  have 
been  the  value  of  property  lost,  destroyed,  abandoned,  sold  or  dis- 
posed of  and  the  amount  of  impairment  to  the  property  (ordinary 
wear  and  depreciation  expected)  during  the  same  period; 

Third,  the  amount  of  any  moneys  or  securities  on  deposit  with 
the  trustee  of  any  mortgage  assumed  by  the  Company,  represent- 
ing the  proceeds  from  the  sale  of  property  mortgaged,  which 
amount  is  required  to  be  paid  to  the  reduction  of  the  debt  under 
such  mortgage.     (Sec.  24.) 

Philadelphia 

The  Capital  Value  of  the  Company's  property  is  not  formally 
fixed.  Payment  of  fixed  charges  on  mortgages,  as  well  as  rentals, 
is  provided  for  and  a  special  audit  of  the  Company's  accounts  is 
provided  in  order  to  ascertain  the  amount  of  such  charges.  One 
of  the  objects  of  the  1907  Contract,  as  set  forth  in  the  preamble, 
was  to  provide  that  the  securities,  of  the  Company  and  its  under- 
lying properties,  should  be  "  unquestioned."  The  investment  of 
the  Philadelphia  Rapid  Transit  Company  itself,  irrespective  of 
the  underlying  properties,  is  fixed  at  $30,000,000,  less  any 
installments  on  underlying  shares  remaining  unpaid.     (Art.  20.) 

Denver  Service  at  Cost  Ordinance     * 

The  basic  value  of  the  property  coming  under  the  provisions 
of  the  ordinance,  both  for  the  purpose  of  regulating  fares  and  for 
the  fixing  of  a  purchase  price,  is  placed  at  $20,867,750,  as  of 
January  1,  1918.     This  is  the  value  placed  upon  the  property  by 


^r 


Service  At  Cost  Agreements 


279 


the  Public  Utilities  Commission  of  the  State  of  Colorado,  and 
accepted,  after  investigation,  by  a  committee  of  55  representative 
citizens  of  the  city  of  Denver  appointed  by  the  Mayor  to  investi- 
gate and  report  upon  the  street  railway  problem.   (Art.  4 ;  Sec.  1.) 

Denver  Elastic  SiX-cent  Fare  Ordinance 

No  provisions. 

Minneapolis 

For  the  purpose  of  fixing  the  return  to  the  Company  and  for 
purchase  by  the  City,  the  Original  Capital  Value  (Initial  Value) 
as  of  January  1,  1919,  is  fixed  by  the  Grant  at  $24,000,000, 
which  is  the  value  as  of  January  1,  1916,  fixed  by  F.  W.  Cap- 
pelen.  City  Engineer,  plus  the  value  of  property  acquired  between 
January  1,  1916,  and  December  31,  1918,  as  determined  by 
Bion  J.  Arnold.     (Sec.  17.) 

The  Original  Property  Value,  as  of  January  1,  1919,  is  also 
fixed  at  $24,000,000.     (Sec.  16.) 

2.— ADDED  VALUE 

Chicago 

The  par  value  of  bonds,  debentures,  or  other  obligations  issued 
for  new  capital  funds  or  other  capital  expenditures  authorized 
by  the  Grant,  shall  be  added  to  Initial  Value  at  the  time  sold  and 
when  added  to  the  Capital  Account.    (Sec.  24.) 

Philadelphia 
There  is  no  formal  definition  of  Added  Value  in  the  Grant,  the 
Company  is  permitted  to  earn  a  return  upon  new  capital  fur- 
nished by  it,  and  provision  is  made  for  the  certification  at  three- 
month  periods  of  such  new  capital  furnished.     (Arts.  20  and  23.) 

Denver  Service  at  Cost  Ordinance 
There  shall  be  added  to  basic  value  the  total  cost  of  Additions, 
Betterments  and  Improvements  (as  defined  by  the  rulings  and  the 
Uniform  System  of  Accounts  of  the  Interstate  Commerce  Com- 
mission and  •  determined  from  the  records  of  the  Company, 
authenticated  by  the  Board  of  Tramway  Control)  made  subse- 
quently to  January  1,  1918.     (Art.  4;  Sec.  2.) 


280 


Service  At  Cost  Aoeeements- 


Dbjiveb  Elastic  Six-cent  Fare  Ordinanc 


E 


i 


I 


No  provisions. 

Minneapolis 

There  shall  be  added  to  Capital  Value  the  par  value  of  all 
securities  sold  or  debt  created  by  the  Company  either  for  the  pur- 
pose of  creating  the  Stabilizing  Fund,  or  for  Capital  Expendi- 
tures made  after  January  1,  1919,  as  approved  by  the  Citv 
Council     (Sec.  17.) 

The  Company  agrees  to  obtain  new  capital  for  the  purpose  of 
creating  the  Stabilizing  Fund  and  for  Extensions,  Betterments 
and  Permanent  Improvements  required  by  the  ordinance,  the  City 
Council  to  approve  the  amount  and  character  of  the  securities  to 
be  issued  or  debt  created,  as  to  rate  of  interest,  sinking  fund, 
method  of  retiring  same,  if  any,  and  the  price  at  which  thev  shall 
be  sold;  providing  that  the  Company  acting  <liligcntly  and  in  good 
faith  can  sell  such  securities  or  incur  such  debt.     The  par  value 
of  securities  and  the  amount  of  indebtetlness  shall  constitute  a 
capital  expenditure  and  shall  he  added  to  Capital  Value  as  of  the 
date  they  begin  to  draw  interest.     If  securities  arc  issued  for  a 
debt  included  in  Capital  Value  tk-y  shall  bo  included  at  par  value 
in  Capital  Value  in  lieu  of  such  debt.    Funds  secured  by  the  sale 
of  such  securities  or  from  such  debt,  if  not  used  within  a  month, 
shall  be  placed  at  interest  which  shall  be  added  to  Groes  Receipts. 
Premiums  received  from  the  sale  of  securities  shall  be  used  for 
Extensions,  Betterments  and  Permanent  Improvements,  but  not 
added  to  Capital  Value.    Usual  and  necessary  costs  of  financing 
the  sale  of  securities,  approved  by  the  City  Council,  shall  h] 
included  in  the  amount  of  capital  funds  for  which  such  securities 
are  issued.     (Sec.  14.) 

Fpon  the  failure,  neglect  or  refusal  of  the  Company  to  pro- 
vide the  necessary  new  capital  for  Extensions,  Betterments  and 
Permanent  Improvements,  the  City  may,  if  authorized  by  the 
State  Legislature,  provide  such  funds,  either  by  direct  loan  to 
the  Company,  or  by  guaranteeing  the  payment  of  the  Company's 
securities  or  obligations,  and  such  amount  shall  be  added  to 
Capital  Value.     (Sec.  14.) 

There  shall  be  added  to  Property  Value,  the  cost  of  new  prop- 
erty or  betterments  added  from  January  1,  1919  to  the  date  when 


Service  At  Cost  Agreements 


281 


the  Grant  became  effective  and  there  shall  be  added  thereafter  the 
cost,  including  the  cost  of  construction  of  the  property  in  place 
engineering,  supervision  and  legal  expenses  incident  to  construe-' 
tion  and  the  cost  of  obtaining  the  money,  such  as  bond  discount,  of 
all  Extensions,  Betterments  and  Permanent  Improvements,  author- 
ized or  required  by  the  Grant  or  built  by  the  Company  with  the 
approval  of  the  City  Council.     (Sec.  16.) 

In  the  replacement  of  any  principal  part  of  the  Company's 
property  there  shall  he  charged  to  Property  Value  the  excess  cost 
of  the  new  property  over  the  property  displaced,  as  it  appears  in 
the  allocation  of  value  set  up  as  provided  by  the  Grant.  If  the 
Company  is  required  to  construct,  or  reconstruct  any  of  its  track 
equipment  or  roadbed  in  any  street,  before  sewer  and  water  pipes 
are  laid  therein,  and  shall  thereafter  be  required  to  reconstruct 
on  account  of  the  laying  of  such  pipes,  the  Expense  shall  be 

deemed  a  capital,  expenditure  and  allocated  as  an  intangible  value. 
(Sec.  16.) 

3.— DEDUCTIONS  FROM  VALUE 


Chicago 
Payments  to  the  holders  of  the  Company's  bonds,  debentures, 
or  other  obligations  or  on  account  of  the  liens  or  claims,  or  obliga- 
tions secured  thereby  upon  or  against  the   Company's  property 
shall  be  deducted  from  Initial  Value.     (Sec.  24.) 

Philadelphia 
A  Sinking  Fund,  under  the  control  and  in  the  custody  of  a 
Commission  consisting  of  the  Mayor,  the  President  of  the  Com- 
pany and  the  President  of  the  Board  of  Directors  of  City  Trusts 
was  established  by  the  1907  Contract.     Into  this  Sinking  Fund 
the  Company  is  required  to  make  the  following  payments: 

Beginning  with  July,  1912,  and  annually  for  ten  years  after 
at  the  rate  of  $10,000  a  month; 

For  the  next  ten  years  at  a  rate  of  $15,000  a  month ; 
For  the  next  ten  years  at  the  rate  of  $20,000  a  month ; 
For  the  next  ten  years  at  the  rate  of  $25,000  a  month; 


<t* 


282 


Service  At  Cost  Agreements 


Service  At  Cost  Agreements 


283 


1 


n 


For  the  remaining  period  of  the  Contract  (until  19'57)  at  the 
rate  of  $30,000  a  month.     (Sec.  9,  1907  Contract.) 

Such  payments  are  treated  as  fixed  charges  and  deducted  from 
income  before  any  payments  of  dividends  are  made  to  stockholders 
and  before  any  payments  on  account  of  dividends  are  made  to  the 
City.  No  such  dividends  shall  be  paid  as  long  as  Sinking  Fund 
payments  are  in  arrears.  The  money  in  the  Sinking  Fund  may  be 
invested  in  such  securities  as  are  legal  for  Trustees,  or  in  the  stock 
of  the  Company,  which  may  be  purchased  at  a  price  not  above  par, 
or  in  the  bonds  and  underlying  securities  of  the  Company  pur- 
chased on  a  four  per  cent  income  basis.  Stock  or  bonds  so  acquired 
shall  not  be  resold  or  re-issued.  At  anv  time  after  the  fund  shall 
have  accumulated  $5,000,000,  the  City  may  require  that  it  be 
paid  into  the  City  Treasury  and  that  the  City  acquire  absolute 
title  thereto  and  that  future  payments  be  made  directly  into  the 
City  Treasury.     (Sec.  9,  1907  Contract.) 

In  the  ease  of  New  Capital  secured  by  issues  of  preferred  stock, 
provision  for  the  amortization  thereof  shall  be  made  as  approved 
by  the  City  Councils,  and  payments  on  account  of  such  amortiza- 
tion shall  be  made  to  the  Sinking  Fund  Commission,  which  shall 
hold  monies  so  received  for  the  retirement  of,  and  shall  invest  it 
in  such  preferred  stock.     (Art.  12.) 

In  the  case  of  New  Capital  secured  by  debentures,  or  notes, 
similar  provision  shall  be  made  for  amortization  and  payments  on 
account  thereof  shall  be  made  to  the  trustees  for  such  issue  and 
shall  be  invested  by  them  in  such  issue,  if  it  can  be  obtained  at 
a  price  not  to  exceed  105  of  par  value  with  accrued  interest. 
(Art.  12.) 

Denver  Service  at  Cost  Ordinance 

There  shall  be  deducted  from  Value,  the  value  of  property 
retired  as  defined  by  the  rulings  and  the  Uniform  ^System  of 
Accounts  of  the  Interstate  Commerce  Commission.  (Art.  4; 
Sec.  2.)  • 

The  Stipulated  Fair  Value  o£  the  Property,  both  for  the  pur- 
pose of  computing  return  and  for  computing  the  purchase  price 
shall  consist  of  Basic  Value,  plus  the  cost  of  Additions,  Better- 
ments and  Improvements,  and  minus  the  value  of  property- 
retired.     (Art.  4;  Sec.  2.) 


Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Minneapolis 
There  shall  be  deducted  from  Capital  Value,  all  payments  to 
Company,  or  to  the  holders  of  securities  or  evidences  of  indebted- 
ness that  have  been  created  on  account  of  Capital  Expenditures, 
made  out  of  the  Amortization  Fund,  and  the  right  is  reserved  to 
the  City  Council  to  amortize  such  part  of  Capital  Value  as  it 
may  see  fit.     (Sec.  17.) 

The  Grant  provides  for  the  accumulation  of  an  Amortization 
Fund,  to  be  used  for  the  purpose  of  amortizing  any  intangible 
values,  either  in  the  original  $24,000,000  value  or  arising  from 
refinancing  or  from  other  causes.     The  Amortization  Fund  shall 
be    accumulated,    first,    by    payment    thereinto    annually    from 
Operating  Revenue,  of  an  amount  equal  to  one-half  of  one  per 
cent  cumulative,  of  Capital  Value  at  the  beginning  of  the  year ; 
second,  by  any  payments  provided  for  sinking  or  retirement  funds 
in  securities  issued  with  the  approval  of  the  City  Council,  and, 
third,  by  transferals  from  the  Stablizing  Fund,  when  there  shall 
be  an  excess  therein,   as  provided  by  the  Grant.      The  whole 
or   any   part   of   the   Amortization    Fund   may   be  paid   to  the 
Company  or  the  holders  of  bonds  or  interest  bearing  obligations 
of  the  Company  that  have  been  created  for  Capital  Expenditures 
for  the  purpose  of  extinguishing  such  obligations  and  Capital 
Value  shall  be  reduced  to  the  extent  of  such  payments;  or  the 
City  may  direct  the  Company  to  use  the  amounts  so  paid  for 
Extensions,  Betterments  or  Permanent  Improvements,  in  which 
case  the  amount  so  used  shall  not  be  added  to  Capital  Value,  but 
shall  be  added  to  Property  Value.     When  the  intangibles  for  the 
elimination  of  which  the  Amortization  Fund  was  created  have 
been  so  eliminated,  the  City  Council  may  order  discontinuance  of 
payments  into  the  Fund  from  Operating  Receipts,  or  may  order 
the  Company  to  set  aside  and  pay  into  the  Fund  any  other  amount 
that  the  amount  so  provided  in  the  Grant  to  be  used  to  reduced 
Capital  Value.     (Sec.  13.) 

"  Intangible  values  in  Capital  Value  shall  be  taken  and  deemed 
to  be  such  elements  in  Capital  Value  as  are  not  reflected  in  or 


ft 


284 


Service  At  Cost  Agreements 


repreWMtei  by  values  of  the  existing  physical  property  in  agreed 
valuation  as  of  January  1,  1919,  together  with  additions  thereto. 
The  Intangible  Yahies  shall  be  allocated  by  direction  of  the  City 
Council."     (Sec.  9.) 

There  shall  be  deducted  from  Property  Value  first  the  cost 
assigned  in  the  inventory  of  January  1,  1916  or  in  the  Arnold 
analysis  of  additions  between  January  1,  1916  and  December 
31,  1918  of  withdrawals  of  property  from  January  1,  1919  to 
the  date  when  the  Grant  becomes  effective;  and  second  the  value 
of  any  property  withdrawn  from  Property  Value,  as  it  appears 
in  the  valuation  of  January  1,  1916,  in  the  Arnold  analysis,  or 
in  the  case  of  property  added  after  January  1,  1919,  at  actual 
cost.     (Sec.  16.) 

At  the  time  the  Grant  takes  effect,  the  Company  shall  set  up 
in  its  books  Standard  Property  Accounts  as  prescribed  by  the 
Uniform  System  of  Accounts  of  the  Interstate  Commerce  Com- 
mission modified  to  meet  the  provisions  of  the  Grant  or  subse- 
quent ordinances,  and  shall  allocate,  with  the  advice  and  approval 
of  the  City  Council,  the  full  value  of  the  property  as  agreed  upon 
in  the  Grant,  and  shall  thereafter  allocate  to  these  accounts  all 
additions  to  property  value.  On  or  before  the  20th  of  each  month 
the  Company  shall  report  to  the  Street  Railway  Supervisor,  all 
Capital  Expenditures  for  the  previous  month.  If  correct,  the 
report  shall  be  certified  to  the  City  Council  by  the  Supervisor,  and 
the  Council  shall  approve  or  disapprove  of  the  same.  If  approved 
it  shall  be  final  and  binding  upon  the  City,  except  that  within 
ninety  days  of  the  date  of  the  report,  or  after  the  annual  audit  of 
the  Company's  books,  he  may  correct  any  error.  Such  corrections, 
however,  shall  not  affect  or  impair  any  report  theretofore  certified 
but  shall  be  adjusted  in  the  first  certificate  issued  after  the  end 
of  the  year.     (Sec.  16.) 

Upon  the  removal  of  any  property  which  is  not  replaced  from 
the  Maintenance  Reserve  Fund,  an  amount  which  represents  the 
unreplaced  value  thereof,  as  it  appears  in  the  valuation  of  January 
1,  1916,  the  Arnold  analysis,  or  in  the  case  of  property  added 
subsequent  to  January  1,  1919,  actual  cost,  shall  be  transfered 
to  a  suspense  account  and  amortized  from  the  Amortization  fund. 
(Sec.  16.) 


Service  At  Cost  Agreements 


285 


4.— RATE  OF  RETURN 

Chicago 

Upon  bonds  and  other  obligations  secured  by  liens  against  the 
property,  rights  and  franchises  of  the  Company  —  the  interest 
stipulated  in  such  bonds  and  other  obligations;  (Sec.  16) 

Upon  debentures  issued  in  part  payment  of  the  property  of  the 
Chicago  Surface  lines  and  Elevated  Railways  required  under  the 
terms  of  the  Grant  to  be  acquired  by  the  Company  —  eight  per 
cent  per  annum  until  July  31,  1932  and  seven  per  cent  per 
annum  thereafter.     (Sec.  2.) 

Upon  debentures  issued  by  the  Company  to  obtain  l^ew 
Capital-return  as  fixed  by  the  Trustees,  at  the  time  such  debentures 
shall  be  sold. 

Philadelphia 

Fixed  charges  on  obligations  of  the  Company  —  either  mort- 
gages, leases  or  operating  contracts  —  assumed  before  the  Grant 
took  effect  or  mortgages  refunded,  at  the  rate  contracted  for; 

Interest  and  sinking  fund  charges  on  New  Capital,  as  approved 
by  City  Councils  at  the  time  of  their  issuance ; 

Sinking  Fund  Charges  as  provided  in  the  1907  contract; 

Five  per  cent,  on  the  Company's  investment  ($30,000,000,  less 
any  unpaid  installments  on  outstanding  stock).  (Arts.  20  and 
24). 

Denver  (Service  at  Cost  Ordinance 

The  Rate  of  Return  upon  the  Stipulated  Fair  Value  of  the 
property  shall  be  as  follows: 

From  the  date  the  ordinance  becomes  effective,  until  April  30, 
1920,  at  the  rate  of  five  and  one-half  per  cent  per  annum; 

From  May  1,  1920,  to  October  31,  1920,  at  the  rate  of  six  per 
cent  per  annum ; 

From  November  1,  1920,  to  April  30,  1921,  at  the  rate  of  six 
and  one-half  per  cent  per  annum; 

After  April  30,  1921,  at  the  rate  of  seven  per  cent  per  annum. 
(Art.  8;  Sec.  2.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 
19 


I 


I 


\  III 


28C 


Service  At  Cost  Agreements 


Minneapolis 
Seven  per  cent  per  annum  cumulative  upon  Original  Capital 
Value  (Initial  Value)  as  of  January  1,  1919.  Upon  securities 
issued  and  debt  incurred  with  the  approval  of  the  City  Council  and 
added  to  Capital  Value  thereafter,  the  interest  as  approved  by  the 
City  Council  plus  one  per  cent  per  annum  cumulative,  except  that 
upon  money  loaned  or  securities  issued  by  the  Company  and 
guaranteed  by  the  City,  there  shall  be  paid  no  return  over  and 
above  the  actual  interest.     (Sees.  9  and  14.) 

5.— ADDITIONAL  ALLOWANCES 

Chicago 
'No  provisions. 

Philadelphia 

No  additional  allowances. 

Denver  Service  at  Cost  Ordinance 

Allowances  in  addition  to  the  regular  rate  of  return  are  pro- 
vided by  the  ordinance  as  follows : 

In  any  calendar  month  in  which  the  adult  fare  shall  be  six 
cents,  one-twelfth  of  one-fourth  of  one  per  cent ; 

In  any  calendar  month  in  which  the  adult  ticket  fare  shall  be 
five  and  one-half  cents,  one-twelfth  of  one-half  of  one  per  cent ; 

In  any  calendar  month  in  which'  the  adult  fare  shall  be  five 
cents,  one-twelfth  of  three-fourths  of  one  per  cent ; 

In  any  calendar  month  in  which  the  adult  fare  shall  be  less 
than  five  cents,  one-twelfth  of  one  per  cent.     (Art.  8 ;  Sec.  2.) 

Denver  Elastic  Six-cent  Fare  Ordinance 

No  provisions. 

Minneapolis 
None. 


^'T 


6.— ASSURANCE  OF  RETURN 


Chicago 

There  is  no  other  assurance  of  return  than  that  provided  by  the 
regulation  of  fares  to  cover  the  cost  of  service. 


Service  At  Cost  Agreements 


287 


Philadelphia 
No  other  assurance  of  return  is  given  than  that  provided  by  a 
system  of  fares,  which,  subject  to  the  Pennsylvania  Public  Service 
Commission,  is  intended  to  respond  to  the  cost  of  the  service. 

Denver  Service  at  Cost  Ordinance 
No  other  assurance  of  return  is  afforded  than  that  given  by  the 
automatic  regulation  of  fares  to  cover  the  cost  of  the  service. 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  assurance  of  return  provided.    There  is  partial  assurance 
that  fares  will  be  sufficient  to  pay  wage  increases. 

Minneapolis 

;No  assurance  of  return  is  provided  other  than  by  the  automatic 
regulation  of  fares  and  by  the  right  given  to  the  Company  to 
object  to  requirements  of  the  City  as  to  service  and  extensions 
which  would  impair  the  ability  of  the  Company  to  earn  the  cost 
of  the  service. 

On  the  other  hand  it  is  provided  that  "  nothing  in  this  ordi- 
nance contained  shall  constitute  an  obligation  or  iniarantv  on  the 
part  of  the  City  to  pay  to  the  Company  the  seven  per  cent  per 
annum  on  the  Capital  Value  or  the  amount  of  interest  plus  one 
per  cent  per  annum  on  new  capital  as  above  providtxl,  and  further, 
that  in  no  event  shall  any  taxes  be  levied  or  other  appropriations 
be  made  by  the  City  Council  to  provide  for  the  payment  of  said 
seven  per  cent  cumulative  or  the  one  per  cent  cumulative  on  new 
capital  or  for  any  deficiency  in  the  said  payment  which  may  here- 
after accumulate  or  hereafter  be  accumulated  under  the  terms  of 
this  ordinance."     (Sec.  9.) 

E.  COST  OF  SERVICE 

1.—  DEFINITION 

Chicago 
There  is  no  definition  of  the  Cost  of  Service.     The  Grant  pro- 
vides for  the  payment   of  the  following  items  out   of  Gross 
Receipts : 


i 


» 


288 


Service  At  Cost  Agreements 


Item  First:  (a)  All  expenses  of  operation,  including  mainte- 
nance, repairs  and  renewals  (except  such  payments  as  are  made 
from  the  Maintenance  and  Repair  Fund,  the  Eenewal  and  Depre- 
ciation Fund  and  the  Damage  Claim  Fund),  including  all  pay- 
ments required  to  be  made  by  the  Company  under  any  lease  or 
operating  agreement; 

(b)  PajTnents  into  the  Maintenance  and  Repairs,  Renewals  and 
Depreciation  and  Damage  Claims  Funds.     (Sec.  16.) 

The  Trustees  shall  set  aside  from  Gross  Receipts  a  sufficient 
fund  to  meet  all  claims  from  damages  arising  out  of  the  operation 
of  the  Surface  lines  subsequent  to  February  1,  1907  (date  of  the 
so-called  Settlement  Ordinances) ;  damages  arising  from  the 
operation  of  the  Elevated  Lines  previous  to  the  taking  effect  of  the 
Grant  and  damages  arising  from  the  operation  of  the  System  sub- 
sequent to  the  taking  effect  of  the  Grant.  The  amount  that  shall 
be  annually  deducted  is  left  to  the  judgment  of  the  Trustees,  except 
that  the  Fund  shall  at  the  time  of  purchase  by  the  City  be  suffi- 
cient to  meet  all  claims  against  the  Company  at  that  time  out- 
standing. The  monies  so  set  aside  shall  constitute  the  Damage 
Claims  Funds  and  may  be  invested  by  the  Trustees  in  interest- 
bearing  securities,  other  than  those  of  the  City  or  the  Company, 
which  securities  may  be  sold  from  time  to  time  as  occasion  re- 
quires for  the  benefit  of  the  Fund.  Interest  and  earnings  thereon 
shall  be  added  to  the  Fund.  At  the  time  of  the  sale  of  the  prop- 
erty of  the  Company,  the  Fund  shall  pass  into  possession  of  the 
City,  which  shall  hold  the  Company  harmless  on  account  of  all 
claims  for  damages.     (Sec.  15.) 

For  information  as  to  Maintenance  and  Repairs  and  Renewals 
and  Depreciation  Funds  see  E.-(b)-  (b2)  and  E.-2.-(c). 

(c)  Payments  on  account  of  taxes,  assessments  and  other  gov- 
ernmental charges,  including  franchise,  excise  and  income  taxes 
and  city  license  fees,  if  any.     (Sec.  16.) 

Item  Second,  payments  on  account  of  interest  on  bonds  and 
other  outstanding  obligations,  secured  by  a  lien  on  the  Company's 
property  in  accordance  with  the  terms  of  the  Grant.    (Sec  16.) 

Item  Third,  payments  to  the  City  on  account  of  the  use  of  sub- 
ways or  portions  thereof.     (Sec.  16.) 

Item  Fourth,  payments  into  the  Amortization  Fund.    (  Sec.  16. ) 


Service  At  Cost  Agreements 


289 


The  Amortization  Fund  is  established  for  the  purpose  of  pro- 
viding a  substitute  for  new  capital  for  Extensions,  Betterments 
and  Improvements  and  to  provide  for  the  amortization  and  retire- 
ment of  the  Capital  Account.    There  shall  be  paid  into  it : 

(a)  The  amount  required  to  be  set  aside  under  the  sinking  fund 
provisions  of  mortgages  or  deeds  of  trust  assumed  by  the  Company 
as  part  of  the  purchase  price  of  the  Surface  and  Elevated  Lines ; 

(b)  After  five  years  from  the  effective  date  of  the  Grant,  each 
year,  one-quarter  of  one  per  cent  of  the  then  outstanding  Capital 
Account  of  the  Company,  to  be  increased  at  the  end  of  five  years 
to  one-half  of  one  per  cent,  to  be  increased  at  the  end  of  the  next 
^ve  years  to  three-quarters  of  one  per  cent,  to  be  increased  at  the 
end  of  the  next  five  more  years  to  one  per  cent,  at  which  rate  it 
shall  thereafter  stand.  The  amount  to  be  paid  into  the  Fimd  in 
any  year  under  this  provision,  shall  never  be  less  than  the  amount 
paid  in  the  previous  year,  despite  any  decrease  in  Capital  Account 
caused  by  payments  from  the  Amortization  Fund  (Sec.  14)  ; 

(c)  The  Surplus  Receipts  of  the  Company.     (Sec.  14.) 
Whenever  money  is  needed  for  Extensions,  Betterments  and 

Permanent  Improvements  not  including  subways  and  the  con- 
dition of  the  Amortization  Fund  permits,  such  money  shall  be 
taken  from  the  Amortization  Fund,  and  there  shall  be  no  addition 
to  Capital  Account  on  account  thereof .     (Sec.  14.) 

Whenever,  in  the  opinion  of  the  Trustees,  the  condition  of  the 
Amortization  Fund  \\  ill  permit,  money  therein  may  be  used  for 
the  retirement  of  the  outstanding  bonds,  debentures  or  other  obli- 
gations of  the  Company,  or  for  sinking  fund  payments  under  the 
terms  of  mortgages  and  trust  deeds  assumed  by  the  Company  in 
part  payment  of  the  Surface  and  Elevated  lines,  but  no  payment 
shall  be  made  on  account  of  debentures  issued  in  payment  for  such 
property,  until  all  other  bonds,  debentures  and  obligations  of  the 
Company  constituting  a  lien  upon  the  Company's  property  have 
been  paid.  The  amount  so  paid  for  the  purpose  set  forth  herein 
shall  be  deducted  from  Capital  Account.     (Sec.  14.) 

In  case  the  First  and  Refunding  Mortgage  provided  for  by  the 
Grant  shall  contain  sinking  fund  provisions,  approved  by  the  City 
Council  by  ordinance,  sinking  fund  payments  thereunder  may  be 


I 


290 


Sekvice  At  Cost  Agreements 


made  from  the  Amortization  Fund  and  the  Capital  Account  cor- 
respondingly reduced.     (Sec  14.) 

Item  Fifth,  payments  on  account  of  annuity  or  interest  on  out- 
standing debentures  and  other  obligations  or  agreements  of  the 
Company,  not  secured  by  liens  on  the  property,  franchises  and 
rights  of  the  Company.    (Sec.  16.) 

All  payments  under  any  of  the  items  are  culmulative,  and  if 
not  paid  during  the  fiscal  year,  shall  be  paid  out  of  the  Gross 
Keceipts  of  the  next,  or  the  following  fiscal  years  in  the  order 
named.  Any  surplus  Gross  Receipts  remaining  after  the  payment 
of  the  items  specified  shall  be  paid  into  the  Amortization  Fund. 
(Sec.  16.) 

Philadelphia 
The  cost  of  service  is  not  defined,  but  provision  is  made  for 
the  payment  of  the  following  items  out  of  Gross  Revenue : 

First,  Operating  expenses,  including  maintenance  and  damage 
claims ; 

Second.  Taxes,  both  those  assessed  directly  against  the  Com- 
pany and  those  assessed  against  the  Company  on  account  of  its 
ownership  of  Transit  Facilities,  as  well  as  taxes,  licenses  and 
imposts  assessed  against  underlying  companies,  except  taxes  due 
from  such  companies  to  the  city  on  dividends; 

Third.  Fixed  charges,  including  interest  on  mortgages,  rentals, 
payments  on  account  of  operating  agreements  or  other  contracts, 
which  were  in  effect  at  the  time  of  the  taking  effect  of  the  Grant, 
and  any  renewals  or  refunding  thereof; 

Fourth.  Interest  and  sinking  fund  payments  on  new  securities, 
and  dividends  and  sinking  fund  payments  on  capital  stock,  issued 
for  New  Capital ; 

Fifth.  Payments  into  the  Depreciation  Funds  provided  by 
the  Grant ; 

Sixth.  Sinking  Fund  payments  required  by  the  1907  Contract ; 
payments  due  City  on  account  of  taxes  on  dividends  to  holders  of 
the  securities  of  underlying  companies  as  imposed  by  the  charters 
of  such  companies.  The  payment  to  the  City  of  the  sum  provided 
in  lieu  of  paving,  repaving  and  repair  of  paving,  snow  removal 
and  license  fees  (See  E.-3)  ; 


Service  At  Cost  Agreements 


291 


Sevenlh.  Payments  to  both  City  and  Company  of  a  return 
equal  to  5  per  cent  of  their  respective  investments.^  Such  invest- 
ment is  for  the  Company  fixed  at  $30,000,000,  less  any  unpaid 
installment  on  outstanding  stock,  and  for  the  City  is  certified  in 
the  three-month  statements  provided  by  the  Grant ; 

Eighth,  Payment  to  the  City  of  the  difference  between  its 
gross  interest  and  Sinking  Fund  charges  upon  its  investment  and 
the  5  per  cent  return  upon  investment  provided  in  the  previous 
Item.     (Art.  20.) 

All  of  the  payments  provided  for  are  cumulative.  Items  First 
to  Fifth,  inclusive,  shall  be  cumulative  in  order  and  shall  be  made 
up  before  Gross  Revenue  of  subsequent  years  is  applied  to  current 
payments.  The  other  items  shall,  however,  not  be  made  up  in 
subsequent  years  until  after  current  payments  shall  have  been 
made  and  the  Company's  Initial  Surplus  shall  have  been  restored 
to  the  extent  that  it  has  been  depleted  to  make  up  deficiencies 
Thereafter  deficits  in  return  to  the  City  and  the  Company  shall  bo 
made  up  before  Items  Sixth  and  Eighth  shall  be  made  up.  (Art 
.iO ;  oec.  2. ) 

Denver  Service  at  Cost  Ordinance 
The  following  items  are  defined  to  be  the  cost  of  the  ser^  ice,  to 
be  paid  from  Gross  Earnings  in  the  order  named : 

(a)  Cost  of  wages  and  compensation  to  employees; 

(b)  Cost  of  materials  used  in  the  operation  of  the  City  system ; 

(c)  Cost  of  renewals  and  depreciation  of  the  property ; 

(d)  Cost  of  taxes  and  other  governmental  charges,  including 
the  expenses  of  City  supervision ; 

(e)  Cost  of  such  other  operating  expenses  as  are  authorized 
under  the  rulings  and  Uniform  System  of  Accounts  of  the  In- 
terstate Commerce  Commission ; 

(f )  Cost  of  money  invested  in  the  property,  being  the  reason- 
able return  upon  the  Stipulated  Fair  Value  of  the  Citv  Svstem 
(Art.  2;  Sees.  1  and  2.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Piiiladelpttia 
Xo  provisions. 


1 


I 


292 


Service  At  Cost  Agreements 


Minneapolis 

It  is  provided  that  the  following  payments  shall  be  made  from 
Gross  Keceipts,  in  the  order  named: 

First,  expenses  of  management  and  operation,  including  sal- 
aries, wages  and  reasonable  pensions  and  benefits  to  employees 
in  amount  to  be  approved  by  the  City  Council.     (See.  9.) 

Second,  an  amount  monthly  equal  to  one-twelfth  of  2.75  per 
cent  of  Capital  Value  as  of  January  1,  of  the  current  year,  plus 
9  per  cent  of  the  gross  earnings  of  the  month,  to  create  a  Repair, 
Maintenance,  Renewal  and  Depreciation  Fund,  from  which  shall 
be  paid  all  expenses,  necessary  "to  put,  maintain,  repair  and 
keep  said  railway  system  in  first  class  condition."  The  amount 
taken  from  Gross  Earnings  can  be  increased  or  decreased  as  the 
City  Council  may  determine  is  the  need.     (Sees.  9  and  11.) 

Third,  payments  on  account  of  liabilities  for  damages  to  per- 
sons and  property.     (Sec.  9.) 

Fourth,  payments  on  account  of  taxes  and  public  charges,  in- 
cluding all  earnings  and  income  taxes.     (Sec.  9.) 

Fifth,  return  to  the  Company.     (Sec.  9.) 

Sixth,  an  amount  equal  to  one-half  of  1  per  cent,  of  Capital 
Value  as  of  January  1  of  the  current  year,  per  annum  cumulative, 
plus  such  additional  sums  to  provide  sinking  or  retirement  funds 
as  may  be  authorized  by  the  City  Council  in  connection  with  the 
issuance  of  new  securities  to  be  paid  into  the  Amortization  Fund. 
Payments  of  one-half  of  1  per  cent  of  Capital  Value  into  this  fund 
shall  continue  until  the  amount  thereof  equals  the  amount  of  all 
elements  of  intangible  value  contained  in  Capital  Value.  There- 
after only  such  payments  shall  be  made  into  the  Amortization 
Fund  from  Gross  Receipts,  as  the  City  Council  shall  determine. 
(Sec.  9.) 

Seventh,  payment  into  the  Stabilizing  Fund,  of  the  amount 
remaining  after  payment  of  these  items,  which  amount  shall  be 
known  as  "  Surplus  Earnings."     (Sec.  9.) 

Accounting  for  the  purpose  of  determining  fares  shall  be  on 
the  basis  of  monthly  credits  and  charges  and  liabilities  shall  be  so 
allocated,  that  a  suflScient  amount  shall  be  set  aside  each  month  to 
meet  deferred  liabilities  when  they  fall  due.     (Sec.  9.) 


Service  At  Cost  Agreements 


293 


2  — ALLOWANCES 


(a)  Operating 

Chicago 

No  provisions,  the.  matter  being  left  to  the  judgment  of  the 
Trustees. 

Philadelphia 
N^o  operating  allowance  provided  for. 

Denver  Service  at  Cost  Ordinance 
jSTo  actual  Operating  Allowance  is  provided  for.  The  Com- 
pany is,  however,  required  to  present  to  the  Board  of  Tramway 
Control  prior  to  the  last  day  of  each  calendar  year,  a  budget  esti- 
mating the  cost  of  service  for  the  ensuing  year,  and  any  increase 
in  operating  expenditure  over  the  previous  calendar  year,  amount- 
ing to  more  than  three  per  cent,  cannot  be  added  to  cost  of  service, 
unless  it  be  approved  by  the  Board  of  Tramway  Control  (Art' 
3;  Sees.  8  and  9.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
^0  provisions. 

Minneapolis 
While  no  operating  allowance  is  provided,  the  City  retains  con- 
trol over  the  operating  expenditures  by  a  provision  which  Permits 
the  City  Council  to  require  the  Company  to  submit  at  least  45 
days  before  the  beginning  of  each  calendar  year  a  Budget  of 
operating  expenditures  and  receipts  and  further  to  submit  supple- 
mentary budgets  for  expenditures  other  than  those  provided  in 
the  original  Budget.  :N'o  expenditure  not  provided  for  in  the 
Budget  or  a  supplement  approved  by  the  City  Council  thereto 
may  be  met  from  Gross  Receipts.     (Sec.  5.) 

(b)  Maintenance 

(bl)     DEFINITION 

Chicago 
The  Grant  establishes  a  distinction  between  Maintenance  and 
Repairs,  and  Renewals.    "*     *     *     Renewals  are  hereby  defined 


ill 


*.1 


^t/TT 


Service  At  Cost  Agreements 


to  be  the  replacement  of  any  principal  part  of  the  local  trans- 
portation system  or  its  equipment  or  appurtenances  (including 
pavement)  or  subways;  and  the  Trustees  shall  determine  by 
classifications  made  from  time  to  time  what  particular  items  of 
expenditure  shall  be  considered  as  Maintenance  and  Repairs  and 
what  particular  items  of  expenditure  shall  be  considered  as 
Kenewals  under  the  provisions  of  this  ordinance."     (Sec.  8.) 

Philadelphia 
The  Grant  contains  no  definition. 

•    Denver  Service  at  Cost  Ordinance 

The  rulings  and  the  Uniform  System  of  Accounts  of  the  Inter- 
Btate  Commerce  Commission  govern. 

Denver  Elastic  Six-cent  Fare  Ordinance 
The  Grant  contains  no  definition. 

Minneapolis 

The  Grant  contains  no  definition  of  Maintenance,  Repairs, 
Renewals,  or  Depreciation. 

(b2)    HOW  FIXED 

Chicago 

The  Company  is  obligated  by  the  terms  of  the  Grant  to  keep 
its  property  in  such  condition  as  to  give  to  the  public  the  best  pos- 
sible transportation  service,  and  agrees,  irrespective  of  any  of  the 
provisions  of  the  Grant  as  to  amounts  to  be  spent  for  maintenance 
and  repairs,  to  spend  such  sums  as  will  so  maintain  the  property. 
(Sec.  8.) 

The  Company  shall  spend  for  maintenance  and  repairs  an 
annual  amount  at  least  equal  to  six  per  cent  of  its  Gross  Receipts 
for  the  year.  If  in  any  one  year  such  amount  is  not  spent,  it  shall 
be  set  aside  in  a  special  fund  (The  Maintenance  and  Repairs 
Fund)  to  be  used  when  and  as  necessary  for  such  maintenance 
and  repairs.     (Sec.  8.)       " 

Philadelphia 

The  Supervising  Board  shall  pass  upon,  adopt  and  alter  rules 
and  standards  as  to  Maintenance.  (Art.  31;  Sec.  3.)  No  actual 
allowance  is  provided. 


Service  At  Cost  Agreements 


205 


Denver  Service  at  Cost  Ordinance 

By  the  Company  subject  to  the  approval  of  the  Board  of  Con- 

trol  m  case  the  total  operating  expenses  for  anv  one  year  exceed 

those  of  the  previous  year  by  more  than  three  per  cent.     (Art  3  • 

Sec.  7.)  ,  A  V  > 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  provisions. 

Minneapolis 
Repairs,  maintenance,  renewals  and  depreciation  are  to  be  met 
out  of  the  same  fund  —  the  Maintenance  Reserve  Fund        This 
IS  provided  by  payments  from  Gross  Receipts  as  set  forth  in  E  -1 
and  by  receipts  from  the  sale  of  material  or  property  that  may 
become  unnecessary  or  is  unadapled  to  the  use  of  the  Company 
and  from  interest  received  on  such  part  of  the  fund  as  may  be 
invested  or  put  on  deposit.    (Sec.  11.)    If,  however,  such  unneces- 
sary or  unadaptable  property  be  rented,  the  rentals  shall  be  added 
to  Gross  Receipts.     (Sec.  28.) 

When  property  is  replaced,  the  excess  of  cost  of  the  new  prop- 
erty over  the  property  displaced  shall  be  charged  to  Capital,  while 
the  value  of  the  property  displaced  shall  be  charged  to  the  Main- 
tenance Reserve  Fund.     (Sec.  11.) 

The  creation  and  use  of  the  Maintenance  Reserve  Fund  does 
not  relieve  the  Company  from  the  obligation  to  keep  its  property 
in   first-class  condition   by  expenditures   from   Gross   Earnings. 

(c)  Depreciation 

Chicago 
There  shall  be  set  aside  each  month  from  Gross  Eeceipts,  an 
anmount  equal  to  eight  per  cent  of  the  Gross  Eeceipts  of  the 
previous  month  and  the  sums  so  accumulated  shall  constitute  the 
Renewal  and  Depreciation  Fund.  Moneys  in  such  fund  shall  be 
used  to  take  care  of  the  renewal  and  depreciation  of  the  Com- 
pany's property,  including  subways.  There  shall  be  paid  from 
the  Fund  such  amounts  as  are  necessary  to  provide  for  renewals 
and  the  balance  shall  constitute  a  fund  to  provide  against  the 
depreciation  of  the  property.     The  Trustees  are  empowered  to 


a96 


Service  At  Cost  Agreements 


increase  the  amount  set  aside  for  this  fund,  as  in  their  judgment 
seems  desirable  and  necessary.     (Sec.  8.) 

When  replacements  are  made  there  shall  be  charged  to  Capital 
Account,  the  excess  cost  of  new  property  over  the  original  cost  of 
the  property  displaced,  except  that  in  the  case  of  property 
acquired  from  the  Surface  and  Elevated  lines  in  accordance  with 
the  provisions  of  the  Grant,  the  inventory  value  instead  of  the 
original  cost  shall  be  used  in  reckoning  excess.  The  balance  of 
the  cost  of  such  replacements  shall  be  taken  from  the  Renewals 
and  Depreciation  Fund.     (Sec.  8.) 

As  long  as  the  Company  purchases  its  power,  there  shall  be 
charged  to  the  Renewals  and  Depreciation  Fund,  such  part  of  the 
cost  of  such  power  as  represents  the  allowance  made  for  Renewals 
and  Depreciation  by  the  seller,  if  such  allowance  is  made. 
(Sec.  8.) 

The  Trustees  may  invest  any  moneys  in  the  Fund  in  bonds  or 
other  interest  bearing  securities,  except  those  of  the  City  and  the 
Company,  and  may  from  time  to  time  sell  the  securities  so  pur- 
chased and  deposit  the  market  price  thereof  to  the  Credit  of  the 
Fund.     (Sec.  8.) 

In  the  event  of  purchase  by  the  City  any  balance  in  the  fund 
becomes  the  property  of  the  City.     (Sec.  8.) 

Philadelphia 
The  Grant  provides  for  the  setting  up  of  three  distinct  Depre- 
ciation Reserve  Funds  — 

A.  To  provide  for  Transit  Facilities  owned  by  the  City; 

B.  To  provide  for  Transit  Facilities  furnished  by  the  Com- 
pany in  Connection  with  the  City  System ; 

C.  To  provide  for  Transit  Facilities  owned  by  the  Company. 

(Art.  22;  Sec.  1.) 

The  Supervising  Board  may  classify  Transit  Facilities  and 
apportion  depreciation  among  the  several  Funds  in  accordance 
with  such  classification.  Fund  C.  shall  be  started  on  the  date 
when  the  Grant  becomes  effective.  Funds  A.  and  B.  at  the  same 
time  as  the  time  that  the  first  section  of  the  City  System  begins 
operation  or  as  soon  thereafter  as  the  Supervising  Board  may 
determine.    Nothing  shall,  however,  be  set  aside  for  depreciation 


Service  At  Cost  Agreements 


297 


of  permanent  structures  of  the  City's  Transit  Facilities,  until  ten 
years  after  the  date  when  they  shall  be  first  operated,  and  then  the 
appropriation  for  such  purpose  shall  not  exceed  one-half  of  one 
per  cent,  annually.     (Art.  22;  Sec.  1.) 

The  amount  to  be  set  aside  for  depreciation  shall  be  determined 
by  the  Supervising  Board  and  Funds  A.  and  B.  shall  be  in  the 
control  and  custody  of  the  Board.  Fund  C.  shall  be  in  the  custody 
and  control  of  the  Company,  and  shall  be  held  for  and  applied  to 
repairs,  replacements  and  renewals,  other  than  those  paid  for  out 
of  Gross  Revenue,  but  such  use  of  the  fund,  must  be  approved  by 
the  Supervising  Board.     (Art.  22 ;  Sees,  1  and  3.) 

At  the  time  that  the  Contract  takes  effect,  such  amount  as  equals 
the  excess  of  the  amount  in  the  company's  Renewal  Reserve  over 
its  Reserve  Fund  for  Renewals,  as  determined  by  the  special  audit 
provided  by  the  Grant,  shall  constitute  the  Company  Depreciation 
Fund.     (Art.  16.) 

Salvage  from  Transit  Facilities  retired  from  service  shall  be 
credited  to  the  appropriate  Depreciation  Fund.  (Art  22- 
Sec.  2.) 

Whenever  a  Transit  Facility  or  a  principal  part  thereof  shall 
be  retired  from  service,  an  amount  equal  to  its  cost  shall  be  taken 
from  the  appropriate  Depreciation  Fund,  upon  the  requisition 
of  the  Company  approved  by  the  Board  and  be  expended  for  a 
new  Transit  Facility  or  a  principal  part  thereof  for  which  the 
Fund  shall  have  been  set  aside.     (Art.  22;  Sec.  3.) 

Amounts  in  Depreciation  Funds  not  currently  needed  shall  be 
invested  by  the  custodians  of  the  Funds  (in  the  case  of  Fund  C, 
the  Company  shall,  however,  secure  the  approval  of  the  Super- 
vising Board  to  such  investment)  in  the  bonds,  notes  or  other 
securities  of  the  Company,  providing  they  can  be  purchased  at  not 
more  than  par  value,  or  in  such  other  securities  as  may  be  legal 
investment  for  Trustees.     (Art.  22;  Sec.  3.) 

At  the  termination  of  the  lease.  Funds  A.  and  B.  shall  become 
the  property  of  the  City,  while  Fund  C.  becomes  the  property  of 
the  Company.  In  case  the  City  exercises  its  right  of  recapture 
(See  B-l.-(a)  and  (b)  )  all  three  Funds  shall  become  the  property 
of  the  City.     (Art.  22;  Sec.  4.) 


298 


Service  At  Cost  Agreements 


Denver  Service  At  Cost  Ordinance 

"  The  physical  property  of  the  City  system  shall  always  be  well 
and  thoroughly  kept  up  in  first-class  serviceable  operating  condi- 
tion. Therefore,  as  distinguished  from  and  in  addition  to  the 
ordinary  day  to  day  repairs,  constituting  current  maintenance, 
and  in  order  to  adequately  provide  for  the  replacement  and 
renewal  of  track,  cars,  equipment,  buildings  and  plant,  which 
hereafter  shall  become  worn  out,  obsolete  or  useless  and  for  the 
general  depreciation  of  the  property  when  and  as  necessary  and 
needed  for  the  proper  upkeep  in  the  interest  of  the  best  service  to 
the  car  riders,  there  shall  be  set  aside  out  of  earnings  and  as  a 
part  of  the  cost  of  service  as  hereinbefore  defined,  a  sum  monthly 
consecutively  and  cunmlatively  to  be  known  as  the  "  Renewals  and 
Depreciation  Reserve  Fund."  This  fund  as  to  its  amount  shall 
be  reasonable  and  adequate  in  relation  to  the  Stipulated  Fair 
Value  and  its  determination  and  disposition  shall  be  by  and 
under  the  supervision  of  the  Board  of  Tramway  Control,  pro- 
vided always  that  permanent  expenditures  out  of  this  fund  shall 
be  made  only  for  the  purpose  in  this  section  set  forth,  and  that 
this  Fund  or  any  part  thereof  shall  not  in  any  way  afi'ect  or 
change  the  Stipulated  Fair  Value.  Temporary'  unexpended  bal- 
ances may  be  invested  by  the  Company  in  negotiable  securities 
approved  by  the  Board  of  Tramway  Control  and  interest  thus 
earned  shall  be  credited  to  the  Funds."  (Art.  5 ;  Sec.  1.) 

As  a  measure  for  the  adequacy  of  the  Renewals  and  Deprecia- 
tion Reserve  Fund,  the  ordinance  states  that  for  the  Basic  Value 
of  $20,807,750,  set  up  therein,  an  addition  of  $37,500  monthly 

to  the  cost  of  service  shall  be  considered  sufficient.     (Art.   5; 
Sec.  3.) 

Denver  Elastic  Six-cent  Fare  Ordinance 

No  provisions. 

Minneapolis 
Depreciation  is  taken  care  of  through  the  operation  of  the 
Maintenance  Reserve  Fund..    (Sec.  11.) 

S.—  SPEOAL  TAX  AND  IMPOST  FEATURES 

Chicago 

The  Company  shall  pave,  repave  and  keep  in  repair  pavement 
on  the  portion  of  streets,  viaducts  and  bridges  occupied  by  its 


Service  At  Cost  Agreements  299 

The  Company  shall  fiU,  grade,  pave,  clean,  sprinHe  and  keep 
in  repair  eight  feet  of  such  streets  as  it  occupies  with  single  track 
and  16  feet  of  such  streets  as  it  occupies  with  double  trad.    The 

made  or  other  work  done  by  the  City  in  connection  with  its  sewer 
and  water  pipes.     (Exhibit  B.)  w  m  us  sewer 

JV^'  '"'"'  *'''*  '^'  ^""'P'^y  ^«y^  it«  t'-^l^  i»  streets  before 
water  or  sewer  p.pes  are  laid  therein,  or  before  the  street  shaH 

be  g.-aded  or  paved,  and  is  later  comj^elled  to  reconstruct  such 
track,    he  expense  thereof  shall  be  borne  by  the  Com^^y  and 

Cul  )T  *?  *«'  P«f  °™«"««  »f  the  work  by  the  Company,  the 

21'   Z     I  ''•^\^^%^^-^  ^^-  th«  «r-t  becomes 'effiire 
shall  clean  the  r.ght  of  way  of  the  Company,  including  snnw 

zzzf'u^T  ^'^TY/r '-'  ^^  ''^  cit;thtir,T 

sum  of  $51.50  per  mile  of  double  track  surface  line  per  m;nth 

(SibUB  )"  ""'"*''  "'  '"''  "'  *''  ''°^''  ''  '^""^'^  *^-''' 
If  at  any  time  there  shall  be  a  deficit  in  the  cost  of  service  to 
meet  which  an  increase  in  fares  would  otherwise  be  necil'rl 
the  Company  shall  be  relieved  from  its  obligation  to  ckan  a7d 
sprinkle  streets,  and  such  exemption  shall  continue,  untU  t^e 
d^cit  shall  have  been  made  up  from  Gross  Receipt  and  sueh 
Receipts  shall  warrant,  in  the  opinion  of  the  Trustees  the  IZp- 
tion  of  such  obligation.     (Sec.  22.)  resump- 

lloalth  Inspectors,  Firemen  and  Police  employed  by  the  City 
shall  when  m  full  uniform,  be  permitted  to  ride  free.    (Sec.  lof)' 

The  City  may  by  ordinance  provide  for  the  use  without  pay  for 
he  private  right  of  way  of  the  Company  underthe  IvaS 
structure  for  public  comfort  stations.     (Sec.  20.) 

The  Company  shall  pay  the  cost  of*  altering  any  bridge  or  via 
duct  owned  by  the  City,  in  order  to  permit  its'use  by  r  pfd  3" 
li.es  and  in  the  case  of  new  bridges  and  viaducti,  which  ZJ 


300 


Seevice  At  Cost  Agreements 


\   s 


he  so  constructed  as  to  provide  for  their  use  in  connection  with 
the  rapid  transit  system  shall  pay  one-third  of  the  cost.  The  Com- 
pany shall  pay  to  the  City  one-third  of  the  cost  of  maintaining, 
repairing  or  renewing  bridges  or  viaducts  used  by  the  rapid  tran- 
sit lines,  but  full  cost  in  connection  with  maintenance  of  pave- 
ment on  right  of  way  over  viaducts  or  bridges  used  by  surface 
lines.     (Sec.  23.) 

Philadelphia 

In  lieu  of  charges  for  paving,  repaving  and  repair  of  streets 
for  the  removal  of  snow  and  in  lieu  of  license  fees  for  operation 
of  cars  through  streets  or  over  bridges,  the  Company  shall  pay 
to  the  City: 

For  the  first  ten  years  after  the  date  of  the  1907  Contract  — 
$500,000  annually; 

For  the  next  ten  years,  $560,000  annually; 
For  the  next  ten  years,  $600,000  annually ; 
For  the  next  ten  years,  $650,000  annually; 
For  the  next  ten  years,  $700,000  annually. 

In  addition  there  shall  be  added  for  each  additional  street  in 
which  tracks  of  the  Company  are  laid,  seven  cents  for  each  square 
yard  if  paved  with  macadam;  eight  cents  if  paved  with  asphalt 
and  six  cents  if  paved  with  any  other  kind  of  material. 
Similarly,  there  shall  be  deducted  from  payments  made  by  the 

Company  on  this  account,  like  sums  for  streets  in  which  tracks 
are  abandoned. 

If  taxes  other  than  those  on  real  estate  or  dividends  are  imposed 
upon  the  Company  after  the  date  of  the  1907  Contract,  the 
amount  paid  in  accordance  with  the  provisions  here  set  forth 
shall  be  credited  upon  such  assessmenta  (Sec.  10,  1907 
Contract.) 

Denver  Service  at  Cost  Ordinance 

By  the  provisions  of  the  ordinance,  the  Company  is  relieved 
from  the  payment  of  a  franchise  tax  of  $5,000  per  month,  for 
which  it  is  liable  and  from  any  obligation  to  "  pave  or  surface  or 
maintain  any  paving  or  surfacing  on  any  street,  road,  alley  or 
highway,  or  to  construct  or  reconstruct,  maintain  or  improve  any 
public  bridge^  viaduct  or  subway  within  the  City  and  County  of 


Service  At  Cost  Agreements 


301 


Denver."     It  is,  however,  required  to  replace  any  pavement  or 
structure  removed  or  damaged  by  it.     (Art.  11;  Sec.  1.) 

The  Company  is  required  to  carry  firemen  and  policemen  of  the 
City  and  County  of  Denver,  when  in  uniform,  free.     (Art.  10; 

Sec.  1.) 

Denver  Elastic  Six-cent  Fare  Ordinance 

No  provisions. 

Minneapolis 

The  Company  is,  at  the  time  that  any  street  shall  be  paved, 
required  to  pave  with  granite  block  or  other  material  agreed  upon 
the  space  between  its  tracks  and  keep  such  pavement  in  repair. 
In  addition,  it  is  required  to  defray  one-half  of  the  cost  of  the 
paving  foundation  for  a  space  two  feet  on  the  outside  of  its  tracks 
and  keep  the  pavement  in  such  space  in  repair.  There  is  no  pro- 
vision relative  to  repaving.     (Sec.  27.) 

The  Company  is  required  to  keep  free  from  snow  and  ice  that 
portion  of  the  street  occupied  by  its  tracks.  It  shall  oil,  or 
sprinkle  with  water  such  portion  of  streets  occupied  by  its  tracks 
as  the  City  Council  may  require.     (Sec.  26.) 

In  order  to  reduce  the  rate  of  fare,  the  City  may,  if  it  so  elects, 
relieve  the  Company  from  obligations  to  pave  and  maintain  pave- 
ment, or  to  clean,  oil  or  sprinkle  streets.      (Sec.  26.) 

If  the  State  laws  require,  reduced  rates  shall  be  provided  for 
Firemen  and  Policemen.     (Sec.  8.) 

F.  FARES 

l.__  SCHEDULES  OP 

Chicago 

The  Grant  prescribes  an  initial  rate  of  fare  for  rides  within 
present  or  future  city  limits  of  five  cents  for  adults,  three  cents 
for  children  under  twelve  years  of  age,  and  free  rides  for  chil- 
dren less  than  seven  years  of  age  when  accompanied  by  a  fare 
paying  passenger.  Transfers  between  cars  on  the  surface  lines, 
and  between  trains  on  rapid  transit  lines  to  be  free,  but,  if  in  the 
judgment  of  the  trustees  such  a  charge  is  necessary,  a  charge 
not  exceeding  two  cents  to  be  made  for  transfers  between  surface 
and  rapid  transit  lines.    (Sec.  17.) 

^  20 


302 


Service  At  Cost  Agkeements 


For  rides  between  points  outside  of  City  limits,  or  between 
points  inside  City  limits  and  those  outside,  present  fares  shall 
maintain,  until  changed  by  the  Trustees,  with  the  consent  of 
authorities  having  jurisdiction.     (Sec.  17.) 

If  required,  fares  shall  thereafter  be  increased  or  decreased 
by  such  stages  as  the  Trustees  may  decide.  In  this  connection 
such  charge  for  transfers  as  may  seem  expedient  to  the  Trustees 
may  be  imposed.  The  action  of  the  Trustees  in  increasing  or 
decreasing  fares  is  subject  to  such  control  or  regulation  as  may 
be  pi-escribedby  law.     (Sec.  17.) 

General  regulations  for  the  issuing  of  transfers  are  contained  in 
the  Grant.   (Sec.  17.) 

Health  Inspectors,  Firemen  and  Policemen  of  the  City,  when 
in  full  uniform  are  carried  free.     (Sec.  19.) 

ISTo  passes  shall  be  issued,  but  employees  of  the  Company  may 
be  carried  free,  either  upon  tickets  issueil  by  the  Company,  a 

record  of  which  shall  be  kept,  or  when  wearing  an  official  badge 
to  be  furnished  by  the  Company.     (Sec.  19.) 

The  Company  may  make  with  the  approval  of  the  City  Coun- 
cil an  arrangemait  with  the  United  States  Post  Office  Department 
for  lump  compensation,  so  that  "Mail  carriers  shall  be  carried  with- 
out payment  of  fares.     (Sec.  19.) 


Philadelphia 

The  initial  fare  was  fixed  by  the  Grant  at  five  cents,  with  free 
transfers  between  all  parts  of  the  system,  including  both  rapid 
transit  and  surface  line  and  the  Company's  and  the  City's  lines 
except  in  the  Delivery  District  (that  portion  of  the  City  lying 
between  Arch  street  on  the  north  and  Locust  street  on  the  South, 
l>oth  inclusive,  and  between  the  Delaware  and  Schuylkill  rivers). 
Exchange  tickets,  for  which  a  three-cent  charge  is  made  were 
abolished,  except  as  to  the  Deliveiy  District,  in  which  the  charge 
was  to  be  abolished  upon  the  opening  of  the  first  section  of  the 
Frankford  line,  the  Board  however,  being  authorized  to  desig- 
nate eertain  points  within  such  District  as  non-transfer  points, 
if  necessarv'  to  relieve  congestion.     (Art.  21.) 

No  further  schedule  of  fares  is  provided,  it  being  the  duty  of 
the  Supervising  Board  to  prepare  such  schedule  for  presentation 


Service  At  Cost  Agreements 


303 


to  the  Pennsylvania  Public  Service  Commission,  if  a  revision  of 
fares  either  upward  or  downward  is  contemplated.     (Art.  21.) 

Denver  Service  at  Cost  Ordinance 

The  ordinance  contains  no  schedule  of  fares.  It  is  provided 
that  fares  for  adults  shall  l>e  decreased  or  increased  in  the  method 
provided  in  the  ordinance,  by  steps  of  one-half  cent  each,  and  that 
fares  for  children  more  than  six  and  less  than  12  years  of  age 
shall  be  one-half  the  adult  cash  fare,  and  that  upon  the  taking 
effect  of  the  ordinance,  the  Board  of  Control  shall  arrange  and 
promulgate  schedules  of  fares  to  conform  to  the  provisions  of 
the  ordinance.  In  cases  where  an  increase  or  a  decrease  of  fare, 
results  in  a  fractional  fare,  tickets  shall  be  sold  on  cars,  and  the 
cash  fare  shall  be  the  next  highest  exact  number  of  cents.  There 
?hall  be  no  charge  for  transfers.     (Art.  6;  Sees.  2,  3  and  4.) 

Children  under  six  years  of  age,  trainmen  of  the  Company  and 
firemen  and  policemen  of  the  City  of  Denver,  when  in  uniform, 
shall  be  can-ied  free.     (Art.  10;  Sec.  1.) 

The  ordinance  provides  that  the  rate  of  fare  to  be  put  in  effect 
when  the  ordinance  becomes  effective,  shall  be  six  cents  for  adults 
and  three  cents  for  children.     (Art.  6;  Sec.  5.) 

Denver  Elastic  Six-cent  Fare  Ordinance 

It  is  provided  that  upon  the  taking  effect  of  the  ordinance,  the 
Company  may  charge  an  adult  fare  of  six  cents,  childreri  more 
than  six  years  of  age  and  less  than  12  years  of  age  half  price, 
tickets  to  be  sold  by  conductors  on  all  cars,  until  the  fare  is 
changed  in  accordance  with  the  provisions  of  the  ordinance. 
(Sec.  1.) 

At  all  times  free  transfers  shall  be  given,  under  no  greater 
restrictions  than  prevailed  at  the  time  the  ordinance  takes  effect. 
(Sec.  2.) 

Minneapolis 

The  initial  fare  for  passengers  more  than  six  years  of  age. 
shall  be  five  cents.     (Sec.  8.) 

Fares  shall  thereafter  be  increased,  or  decreased,  in  accordance 
with  the  method  prescribed  in  the  Grant,  by  stages  of  one  cent, 
except  that  when  the  fare  is  more  than  five  cents,  tickets  shall  be 


304 


Service  At  Cost  Agreements 


sold  in  lots  of  five  at  a  discount  of  ten  per  cent  from  the  fare  then 
in  effect;  provided,  however,  that  if  at  any  time  when  such 
reduced  rate  tickets  are  sold,  the  earnings  are  insufficient  to  pay 
the  cost  of  the  service,  the  sale  of  such  tickets  may  be  suspended 
until  the  earnings  are  sufficient  to  pay  the  cost  of  service. 
(Sec.  8.) 

Tickets  shall  be  on  sale  at  convenient  places  in  the  City.  If 
fares  shall  be  increased  or  decreased  outstanding  tickets  shall  be 
void,  but  shall  be  redeemed  by  the  Company  at  the  price  paid 
therefor.    (Sec.  8.) 

Under  reasonable  rules  and  regulations  made  by  the  Company, 
it  shall  issue  free  transfers,  unless  it  is  mutually  agreed  upon  by 
the  City  and  the  Company  that  a  charge  shall  be  made  for  trans- 
fers.    (Sec.  8.) 

Children  (not  more  than  two  for  each  paying  passenger,  babes 
in  arms  one  year  and  under  not  included)  under  six  years  of 
age  shall  be  carried  free.  No  passes  shall  be  issued  to  any  except 
Company  employees.  Reduced  rates  for  Firemen  and  Policemen 
may  be  made  subject  to  State  statute.  The  Company  may  con- 
tract with  the  United  States  Government  for  the  transportation  of 
letter  carriers.     ('Sec.  8.) 

The  Company  may  operate  chartered  and  special  cars  at  rates 
uniform,  compensatory  and  reasonable,  to  be  approved  by  the 
City  Council.     (Sec.  8.) 

Despite  the  provisions  of  the  Orant,  the  City  and  Company 
may  enter  upon  an  agreement  providing  a  different  schedule  or 
arrangement  of  fares.     (Sec.  8.) 

t.—  HOW  FIXED 

Chicago 

The  Company  shall  provide  an  Emergency  Fund  of  $2,000,000, 
from  the  sale  of  its  bonds,  the  par  value  of  which  shall  be  added 
to  Capital  Account.  In  case  the  receipts  of  the  Company  are 
insufficient  to  meet  the  Cost  of  Service,  such  deficit  shall  be  paid 
out  of  the  Fund,  and  monev  so  withdrawn  shall  be  restored  from 
Gross  Receipts,  as  soon  as  it  is  practicable  to  do  so.  Moneys  in 
the  Fund  may  be  invested  in  bonds  and  other  interest-bearing 
securities  other  than  those  securities  of  the  City  or  Company,  as 


Service  At  Cost  Agreements 


305 


the  Trustees  may  see  fit,  and  the  Trustees  may  sell  such  securities 
and  add  the  market  value  thereof  to  the  Fund.  Interest  received 
from  moneys  in  the  Fund  shall  be  added  to  Gross  Receipts. 
(Sec.  18.) 

Whenever,  by  reason  of  withdrawals  from  the  Fund,  on 
account  of  deficits  paid  to  make  good  the  cost  of  service,  it  shall 
be  reduced  below  $1,000,000,  the  Trustees  shall  immediately 
make  such  increases  in  fares  or  transfer  charges  or  both  as  will 
not  later  than  the  end  of  the  following  fiscal  year  restore  the 
amounts  withdrawn  from  the  fund  and  prevent  the  recurrence  of 
such  deficits  during  the  following  fiscal  year.  When  such  deficits 
have  been  made  up,  if  in  the  opinion  of  the  Trustees,  a  new  deficit 
will  not  be  created  thereby,  fares  and  transfer  charges  shall  be 
reduced,  or  transfer  charges  abolished,  as  the  Trustees  may  deem 
proper.     (Sec.  17.) 

If  at  the  time  of  any  annual  report,  the  Surplus  Receipts  war- 
rant, in  the  opinion  of  the  Trustees,  such  action,  fares  shall  be 
reduced,  or  transfer  charges  reduced  or  abolished.     (Sec.  17.) 

Any  increase  or  reduction  in  fares  or  transfer  charges  outside 
of  the  City  or  to  and  from  outside  points  shall  be  subject  to  such 
control  and  regulation  as  shall  be  prescribed  by  law.  (This 
means  that  the  Public  Utilities  Commission  of  Illinois  might  have 
jurisdiction.)   (Sec.  17.) 

Philadelphia 

Initial  Surplus  is  defined  to  be  the  surplus  on  hand  at  the  date 
the  Grant  takes  efi^ect,  as  determined  by  the  special  audit  provided 
by  the  Grant  (See  C.-4.-(c))  (Art.  1  ;*^Sec.  26).  IN'ew  Surplus  is 
the  amount  remaining  and  accumulated  after  the  payments  of  the 
items  of  cost  of  service  provided  by  the  Grant.  (See  E.-l.)  (Art. 
20;  Sec.  3.) 

If  in  any  year  Gross  Revenue  shall  be  insufficient  to  provide 
for  the  payment  of  the  items  of  cost  of  service  as  provided  for 
in  the  Grant,  such  deficits  shall  be  made  up  from  ISTew  Surplus 
until  that  be  exhausted,  and  then  from  Initial  surplus  to  the 
extent  of  $2,000,000.  Should  there  still  be  a  deficit,  it  shall  be 
accumulated  and  paid  from  later  Gross  Revenue.  (Art.  20; 
Sec.  3.) 


30G 


Service  At  Cost  Agreements 


In  case  of  the  destruction  of  or  serious  damage  to  the  system, 
or  a  continued  interniption  of  noimal  operation,  which  results  in 
the  suspension  or  curtailment  of  payments  on  account  of  Depre- 
ciation Funds,  sinking  fund  payments  provided  by  the  1907  con- 
tract, payments  on  account  of  the  taxation  of  dividends  of  under- 
lying companies,  payments  in  lieu  of  paving' and  license  assess- 
ments, return  on  the  Company's  or  City's  investment,  or  the  fur- 
ther payment  provided  on  account  of  the  City's  investment,  the 
Company  is  not  required  to  make  up  such  deticits  out  of  Initial 
Surplus,  if  such  surplus  has  been  depleted  to  the  extent  of 
$500,000  or  more  and  not  restored,  nor  shall  the  Company  he 
required  to  at  any  time  make  good  deficits  from  such  causes  to  an 
extent  of  more  than  $500,000,  if  the  total  depletion  of  the  Initial 
Surplus  is  caused  thereby.  (Art.  20 ;  Sec.  8.)  Fares  shall  not  be 
increased  to  make  up  such  deficits,  nor  shall  they  be  made  up 
unless  the  Supervising  Board  shall  sanction  payment  out  of  after- 
acquired  New  Surplus  resulting  from  "normal  and  reasonable 
fares."     (Art.  20 ;  Sec.  3.) 

If  all  the  payments  provided  under  cost  of  service  cannot  be 
currently  met,  New  Surplus  shall  be  eliminated  and  Initial 
Surplus  depleted  to  the  extent  of  $500,000,  fares  shall  be  revised 
upwards,  so  as  to  provide  Gross  Revenue  sufficient  to  provide  such 
cost  of  service,  restore  within  a  reasonable  time,  Initial  Surplus, 
and  any  deficit  in  the  items  of  cost  of  service.     (Art.  21.) 

Within  thirty  days  after  the  Initial  Surplus  shall  have  been 
depleted  to  the  extent  of  $500,000,  the  Board  shall  prepare  and 
file  with  the  Pennsylvania  Public  Service  Commission  a  schedule 
of  fares,  which  in  its  opinion,  will  produce  the  needed  amount  of 
Gross  Revenue.  If  for  two  quarterly  periods  under  such  new 
schedule  the  Gross  Revenue  shall  be  insufficient  to  pay  the 
cost  of  service,  and  provide  a  surplus  sufficient  within  a  reason- 
able time  to  make  up  money  taken  from  Initial  Surplus  and  pay 
any  deficits  accumulated  in  cost  of  service,  or  if  Initial  Surplus 
having  been  restored  shall. be  again  depleted  to  the  extent  of 
$500,000  by  reason  of  pa^Tuents  of  account  of  current  deficits 
in  cost  of  service,  the  Board  shall  file  a  new  schedule  of  fares 
which,  in  its  opinion,  will  provide  sufficient  Gross  Revenue. 
(Art.  21.) 


Service  At  Cost  Aqueements 


307 


If  during  the  first  year  of  operation  of  any  section  of  the 
City's  Transit  Facilities,  (during  which  first  year  no  return  is 
paid  to  the  City  on  account  of  its  investment),  it  shall  develop 
to  the  satisfaction  of  the  Board,  that  fares  then  in  efl^ect  will  not 
be  sufficient  during  the  ensuing  year  to  provide  Gross  Revenues 
sufficient  to  meet  the  cost  of  the  service,  the  Supervising  Board 
may  prepare  and  file  with  the  Public  Service  Commission  a  new 
schedule  of  fares  to  take  effect,  on  the  date  from  which  the  City 
begins  to  receive  a  return  upon  its  investment.     (Art.  21.) 

The  power  to  permit  increases  of  rates  rests  with  the  Pennsyl- 
vania Public  Service  Commission,  which  may  suspend  schedules 
filed  by  the  Board.  In  case  of  such  suspension,  and  if  rates  are 
not  effective  within  thirty  days  from  the  time  that  tariffs  are 
filed,  the  Company,  may  suspend  payments  to  the  City  on  account 
of  the  remission  of  paving  assessments  and  licenpes,  to  such  an 
extent  as  will  make  possible  the  payment  of  the  return  to  the  City 
and  the  Company  and  the  additional  payment  on  account  of  the 
City's  investment,  and  such  suspension  shall  continue  until  rates 
sufficient  to  provide  the  cost  of  service  shall  be  made  effective. 
(Art.  21.) 

If  for  two  consecutive  years,  the  surplus  shall  increase  a  sub- 
stantial amount  annually,  and  New  Surplus  shall  equal  or  exceed 
$2,000,000,  fares  shall  be  revised  downwards.  The  Supervising 
Board  shall  within  thirty  days  after  reports  showing  this  state  of 
affairs,  file  a  schedule  of  rates  and  charges  which,  in  its  opinion, 
will  reduce  Gross  Revenue,  but  which  will  at  the  same  provide 
revenue  enough  to  meet  the  cost  of  service,  after  applying  thereto 
each  year,  one-third  of  the  New  Surplus,  accumulated  at  the  time 
the  schedule  is  filed,  such  schedule  to  take  effect  within  thirty 
days.  Fares  shall  be  further  reduced  whenever  New  Surplus  shall 
have  again  accumulated  to  the  extent  above  described.     (Art.  21.) 

If  any  part  of  the  City's  Transit  Facilities  are  withdrawn 
from  the  system  operated  by  the  Company  and  the  operations  of 
the  previous  year  indicate  that  the  existing  schedule  fares  will 
produce  more  revenue  than  is  sufficient  to  meet  the  cost  of  the 
service,  the  Supervising  Board  shall  prepare  and  file  with  the 
Public  Service  Commission  forthwith,  a  schedule  of  fares  and 
charges  which  in  the  opinion   of  the  Board  will  reduce  Gross 


308 


Service  At  Cost  Agreements 


Revenues  to  the  extent  of  the  interest  and  sinking  fund  charges 
upon  that  portion  of  the  Transit  Facilities  so  withdrawn,  except 
that  Oross  Revenues  shall  not  he  reduced  below  the  point  neces- 
sary to  provide  the  cost  of  service  on  the  remaining  system. 
(Art.  21.) 

Denver  Service  at  Cost  Ordinance 

The  Company  is  obliged  to  provide  a  fund  of  $300,000  to  be 
known  as  the  Fare  Control  Fund.  The  "  normal ''  amount  of 
such  Fund  shall  be  $300,000.     (Art.  7;  Sec.  1.) 

Into  the  Fare  Control  Fund  shall  be  paid  monthly  any  surplus 
remaining  from  Gross  Earnings  after  the  cost  of  service  has  been 
paid;  from  it  shall  be  taken  monthly  any  deficit  in  the  cost  of 
service.    (Art.  7;  Sec.  2.) 

If  by  reason  of  payments  into  it  from  Gross  Earnings,  the 
Fare  Control  Fund  shall  at  any  time  amount  to  $500,000,  which 
amount  shall  be  known  as  the  "  upper  limit ''  of  the  Fund,  fares 
shall  be  reduced  to  the  next  lower  rate  in  the  schedule.  If  in 
spite  of  the  reduction  in  fares,  the  Fare  Control  Fund  again 
reaches  the  "  upper  limit,"  fares  shall  again  be  reduced,  and  this 
process  shall  continue  until  Fund  remains  at  the  "  Upper  Limit " 
or  below.     (Art.  7 ;  Sec.  3.) 

When  by  reason  of  withdrawals  from  the  Fare  Control  Fund., 
it  shall  be  reduced  to  $100,000,  which  sum  shall  be  known  as 
the  "  Lower  Limit "  of  the  Fund,  the  fare  shall  be  increased  to 
the  next  higher  rate  in  the  schedule.  If  after  such  increase  fur- 
ther withdrawals  are  made  from  the  Fund  to  meet  the  cost  of  serv- 
ice, fares  shall  be  increased  again,  and  such  increases  shall  con- 
tinue to  be  made  until  payments  into  the  Fund  out  of  surplus  are 
made.  The  ordinance  states  that  the  Fare  Control  Fund  "  shall 
be  maintained  as  nearly  the  "  normal  "  amount  as  possible  consist- 
ent with  the  purpose  to  render  service  to  the  public  at  actual 
cost."  (Art.  7;  Sec.  4.) 

Denver  Elastic  Six-cent  Fare  Ordinance 
The  initial  fare  permitted  by  the  ordinance  is  conditioned  on 
the  payment  by  the  Company  of  the  wages  fixed  in  the  award  of 
the  ]?^atictnal  War  Labor  Board,  dated  November  20,  191S. 


Service  At  Cost  Agreements 


zm 


If  at  any  time  wages  paid  employes  are  increased  or  decreased, 
the  Company  shall  so  notify  the  Board  of  Control,  and  the  Board 
may  increase  or  decrease  fares  to  take  care  of  such  increase  or 
decrease  in  wages.    If  increased  they  shall  not  be  increased  more 
than  will  produce  revenue  sufficient  to  provide  the  increase  in 
wages,  and  if  decreased  they  shall  not  be  decreased  more  than  the 
difference  in  the  sum  total  of  wages  paid  before  such  decrease 
and  the  sum  total  paid  after  such  decrease.  In  no  event  shall  fares 
be  increased  to  meet  any  increase  in  wages,  which  will  provide  a 
scale  higher  than  the  average  hourly  scale  paid  in  the  cities  of  St. 
Louis,  Omaha,  Kansas  City,  Minneapolis  and  St.  Paul.    If  at  any 
time  the  Board  of  Control  should  ascertain  that  the  wage  schedule 
of  the  Company  is  in  excess  of  the  average  schedule  paid  in  the 
above  named  cities  and  higher  than  the  scale  fixed  bv  the  National 
War  Labor  Board  as  of  November  20,  1918,  the  Board  of  Con- 
trol shall  determine  the  fare  to  be  charged  to  meet  such  schedule 
The  Board  of  Control  shall  act  upon  any  notification  of  wage 
mcreases  or  decreases  within  ten  days  of  the  receipt  of  such  notifi- 
cation and  the  Company  shall  put  into  effect  fares  determined  by 
the  Board  of  Control,  within  ten  days  of  the  receipt  of  notification 
of  change.     (Sees.  3  and  4.) 

Minneapolis 
A  fund  for  Stabilizing  Fares  is  established  by  the  provisions  of 
the  Grant,  to  consist  of  the  sum  of  $250,000  furnished  bv  the 
Company  and  added  to  Capital  Value.  From  this  Fimd  all 
deficiencies  in  the  Cost  of  Service  are  met,  except  that  when  the 
sum  therein  is  insufficient  to  make  up  such  deficits,  they  shall  be 
paid  from  subsequent  Gross  Receipts,  or  from  the  proceeds  of 
loaiis  made  by  the  Company  to  be  repaid  from  subsequent  Gross 
Receipts  at  the  rate  of  one-twelfth  and  interest  thereof  each 
month.  To  the  Fund  shall  be  added  all  Surplus  Earnings. 
(Sec.  12.) 

If  at  the  end  of  any  fiscal  year  the  Fund  shall  amount  to 
$450,000  or  more,  the  excess  in  the  Fund  to  the  amount  of  not 
less  than  $100,000  or  more  than  $200,000  as  directed  bv  the  City 
Council  shall  be  paid  into  the  Amortization  Fund.      (Sec    19  ) 

If  the  Fund  be  increased  to  $500,000  and  the  Company  esti- 
mates that  the  next. lower  fare  will  produce  sufficient  revenue  to 


310 


Sekvice  At  Cost  Agreements 


Service  At  Cost  Agreements 


311 


provide  for  payment  from  Gross  Receipts  into  the  Fund,  the  next 
lower  fare  shall  be  put  in  effect.  If  at  the  end  of  three  months 
after  the  time  when  the  lower  faro  goes  into  effect,  the  Fund  shall 
have  accumulated  an  additional  sum,  the  fare  shall  be  reduced  to 
the  next  steps  and  such  reductions  shall  continue  at  three  month 
intervals,  until  accumulations  in  the  Fund  shall  have  ceased. 
(Sec.  12.) 

If  at  any  time  the  amount  in  the  Fund  shall  be  reduced  to 
$150,000  by  reason  of  payments  on  account  of  deficits  in  the  Cost 
of  Service,  the  fare  shall  be  increased  one  step,  and  if  at  the  end 
of  three  months,  the  Fund  shall  be  further  reduced  for  the  same 
cause,  the  fare  shall  be  increased  another  step  and  if  at  the  end 
of  three  months,  payments  are  still  required  from  the  Fund, 
increases  by  successive  steps  shall  be  continued  at  three  month 
intervals,  until  payments  from  the  Fund  on  account  of  deficits  in 
Cost  of  Service  are  no  longer  required.     (Sec.  12.) 

Notice  of  increase  or  decrease  of  fare  shall  be  given  by  the 
Company  through  publication  in  one  paper  of  general  circulation 
in  the  City  and  by  the  posting  of  notices  in  the  Company's  car* 
on  or  before  the  15th  of  the  month,  prior  to  the  month  upon  the 
first  day  of  which  such  increase  or  decrease  shall  be  effective. 
(Sec.  8.) 

The  Stabilizing  Fund  shall  be  deposited  at  interest  and  such 
interest  shall  be  added  to  Gross  Receipts.     (Sec.  12.) 

O.   TRANSPORTATION  OF  FREIGHT,  EXPRESS,  ETC. 

Chicago 

"  No  part  of  the  local  transportation  system  shall  be  used  for 
any  purpose  but  the  transportation  of  passengers  except  as  herein 
expressly  provided."     (Sec.  1.) 

The  Company  may  carry  and  handle  express  matter,  baggage, 
mail,  milk,  parcels  and  such  other  package  freight  as  may  be  des- 
ignated by  the  Trustees,  and  at  rates  to  be  fixed  and  regulated  by 
the  Trustees.  It  may  enter  into  contract,  with  the  approval  of  the 
City  Council,  with  suburban  and  interurban  companies,  for  the 
operation  of  freight  or  express  cars  of  such  companies  over  its 
tracks,  such  cars  to  be  approved  as  to  design  and  equipment  by  the 
Trustees.    (Sec.  20.) 


Philadelphia 
Subject  to  such  restrictions  as  the  City  may  impose,  the  Com- 
pany may  use  the  Unified  System  for  the  transportation  of  freight, 
mail,  express  and  other  unobjectionable  matter,  except  that  the 
use  of  the  system  for  the  transportation  of  passengers  to  its  fullest 
capacity  shall  not  be  interfered  with.  Within  these  limits  the 
City  may  require  the  Company  to  carry  freight,  mail  and  other 
unobjectionable  matter.     (Art.  17.) 

Denver  Service  at  Cost  Ordinance 
*'  The  Company  is  authorized  to  carry  United  States  mail  and 
light  parcels,  besides  those  in  possession  of  the  passengers,  if  not 
interfering  with  the  convenience  and  safety  of  passengers.  The 
Company  shall  also,  by  and  with  the  consent  of  the  Board  of 
Tramway  Control,  have  the  right  to  haul  or  transjwrt  in  suitable 
cars,  such  materials  and  supplies  for  and  on  l^ehalf  of  the  City 
and  the  public,  at  such  times  and  over  such  routes  as  the  Board 
of  Tramway  Control  may  approve.  All  charges  for  such  service 
shall  be  compensatory,  uniform  and  reasonable  and  shall  be 
subject  to  the  approval  of  the  Board  of  Tramway  Control."  (Art 
0;Scc.  1.) 

Denver  Elastic  Six-cent  Fare  Ordinance 

No  provisions. 

Minneapolis 

The  Company  may  carry  on  its  cars  mail  and  light  parcels 
besides  those  in  the  possession  of  passengers,  under  rules  and 
regulations  approved  by  the  City  Council  and  at  charges  which 
shall  be  uniform,  reasonable  and  compensatory.     (Sec.  2.) 

The  Company  is  required  when  ordered  by  the  City  Council  to 
transport  over  its  lines  materials  for  municipal  construction  and 
other  purposes  at  a  reasonable  compensation,  and  the  City  may 
construct  or  require  the  Company  to  construct  at  the  City's 
expenses.,  tracks  connections  between  the  City's  warehouses  and 
the  Company's  tracks,  but  the  transportation  of  material  for  City 
or  for  Company  use  shall  not  be  allowed  to  interfere  with  the  use 
of  the  tracks  and  facilities  of  the  Company  for  passenger  trans- 
portation.    (Sec.  2.) 


1 


312 


Service  At  Cost  Agreements 


H.  SPECIAL  PROVISIONS 

Chicago 
Labor: 

Hours  of  labor  and  working  conditions  shall  conform  to  just 
and  reasonable  standards  of  safety,  health,  comfort  and  efficiency. 
Wages  shall  be  just  and  reasonable  and  not  less  than  customarily 
paid  for  services  of  like  character  under  substantially  similar 
conditions.     (Sec.  27.) 

Intervention  and  Enforcement: 

The  City  may  intervene  in  any  suit  brought  to  enjoin,  restrain 
or  interfere  with  the  Company  in  the  doing  of  any  work  called 
for  by  the  Orant,  in  the  observance  of  the  terms  of  the  Grant, 
or  in  an  action  to  foreclose  under  any  lien,  mortgage  or  trust  deed. 
The  City  may  by  mandamus,  injunction  or  other  appropriate 
legal  proceedings,  compel  the  performance  of  their  respective 
duties  and  obligations  by  the  Company  or  the  Trustees  and  the 
Company  may  likewise  proceed  against  the  City.     (Sec.  29.) 

Lease  or  Assignment: 

The  Company  may  make  no  lease  or  assignment,  or  operating 
agreement  without  the  consent  of  the  City.     (Sec.  31.) 

Philadelphia  , 

Right  to  Dissolve  Unified  System: 

It  is  provided  by  the  Grant  that  the  Transit  Facilities  owned 
by  the  City  shall  be  combined  with  those  owned  by  the  Company 
and  operated  as  a  unified  system.  At  the  termination  of  the 
Grant,  the  City  may  dissolve  the  Fnified  System  and  reacquire 
its  property.    In  this  event  the  Company  shall : 

Surrender  to  the  City  the  City's  Transit  Facilities  in  good 
condition  and  repair,  except  for  natural  deterioration,  but  it  shall 
not  be  required  to  make  good  damage  or  destruction  caused  by 
war,  riot,  earthquake  or  other  extraordinary  occurrence  not 
insurable,  "  and  generally  comprehended  under  the  term  of  God 

or  vis  major  "j  (Art.  26;  Art.  28;  Sec.  1.) 


Service  At  Cost  Agreements 


313 


Surrender  to  the  City  all  Transit  Facilities  furnished  by  it  for 
the  City,  provided  that  the  City  shall  pay  to  the  Company  an 
amount  equal  to  the  cost  of  such  facilities,  less  — 

Any  repayment  of  such  cost  which  the  Company  shall  already 
have  received  through  the  operation  of  any  Amortization  Fund, 
or  otherwise, 

The  amount  of  securities  issued  for  such  cost,  if  the  same  have 
been  fully  amortized,  or  if  the  City  shall  assume  the  same. 

The  amount  of  amortization  of  securities  issued  in  payment  for 
such  Transit  Facilities  which  shall  not  be  assumed  by  the  City; 

Nora:  If  securities  have  been  issued  which  cover  expenditures  on  accoJnt 
of  both  City  and  Company  Transit  Facilities,  the  Supervising  Board  shall 
determine  the  proportion  to  be  assigned  to  each.     (Art.  28;  Sec   1.) 

Pay  to  the  City  the  City's  share  in  the  then  existing  IN^ew  Sur- 
plus, which  share  shall  be  apportioned  upon  the  same  basis  as 
that  provided  for  calculating  the  return  to  the  City  and  Company. 
(See  E.-l.)     (Art.  28;  Sees.  1  and  2.) 

Initial  Surplus  shall  remain  the  property  of  the  Company 
(Art.  28;  See.  2.)  ^' 

If  the  Unified  System  be  dissolved  by  reason  of  any  default 
upon  the  part  of  the  Company,  then  the  Initial  Surplus  and  the 
Company's  share  of  ISTew  Surplus  shall  be  available  for  any 
damages  awarded  to  the  City  by  the  Court.     (Art.  28 ;  Sec.  2.) 

Assignment: 

The  contract  shall  not  be  assigned,  sublet,  or  mortgaged  without 
the  consent  of  the  City  expressed  by  ordinance.  The  appointment 
of  a  Receiver  for  the  Company  shall  not  be  considered  an  assign- 
ment or  cause  for  termination  of  the  Contract.     (Art.  32.) 

Public  Svhsidy: 

"  The  City  reserves  the  right  from  time  to  time  to  determine 
what  portion  of  the  interest  and  sinking  fund  charges  upon  its 
investment  in  Transit  Facilities  shall  be  borne  by  the  car-riders 
and  what  portion  shall  be  borne  by  the  taxpay^ir  *  *  ♦." 
Accordingly  the  City  may  withdraw  any  or  "all  of  its  in- 
vestment from  the  rental  requirements  of  the  Contract,  in  which 


314 


Service  At  Cost  Agreements 


case  no  return  shall  be  paid  on  the  portion  so  withdrawn  and  this 
fact  shall  he  taken  into  consideration  in  computing  schedules  of 
fares.     (Art.  18.) 

Extraordinary  Repairs: 

In  case  of  damage  to  or  desti-uction  of  any  of  the  City's  Transit 
Facilities  by  war,  riot,  earthquake  or  other  extraordinary  occur- 
rence not  ordinarily  insurable,  and  generally  comprehended  under 
the  term  act  of  God,  or  vis  major,  the  same  shall  be  repaired  or 
replaced  by  the  City  and  charged  to  the  cost  of  the  City's  Transit 
Facilities.    (Art.  26.) 

Denver  Service  at  Cost  Ordinance 
No  special  provisions. 

Denver  Elastic  Six-cent  Fare  Ordinance 
No  special  provisions. 

Minneapolis 

Wages  and  Worlcing  Conditions: 

The  hours  of  work  and  working  conditions  shall  conform  to 
just  and  reasonable  standards  of  safety,  health,  comfort  and 
efficiency.  Employes  shall  not  be  required  to  work  more  than  54 
hours  in  any  one  week.  Wages  "  shall  be  just  and  reasonable  and 
not  less  than  shall  be  customarily  paid  for  services  of  like  char- 
acter under  substantially  similar  conditions."     (Sec.  6.) 

Any  properly  accredited  committee  representing  fifty  per  cent 
of  the  employes  of  any  department,  with  or  without  counsel,  shall 
be  entitled  to  a  hearing  from  the  Company  and  the  Company 
shall  take  up  for  adjustment  any  matter  of  wages,  hours  of  lal)or 
or  working  conditions  presented  by  such  committee.  If  the  Com- 
pany and  the  Committee  are  unable  to  agree,  and  the  employes 
ask  for  arbitration  of  the  matter  in  dispute,  then  the  Company 
shall  consent  to  such  arbitration,  which  shall  be  conducted  in  the 
same  manner  as  is  provided  in  the  Grant  for  the  arbitration  of 
other  questions,  except  that  the  employes  shall  select  one  of  the 
arbitrators  in  place  of  the  City.     (Sec.  6.) 


Service  At  Cost  Agreements 


315 


Central  Passenger  Station: 

The  City  may  construct,  or  may  authorize  any  other  person, 
corporation  or  association,  including  the  Company,  to  construct, 
a  central  passenger  station  for  the  handling  of  suburban  and 
interurban  passengers.  United  States  mail  and  express,  and  for 
the  storage  of  Company  cars  to  be  used  in  rush  hour  periods,  and 
compel  the  use  of  such  station  by  suburban  companies.  The 
station  shall  be  located  in  the  retail  business  district  of  the  City, 
and  its  location  may  be  decided  upon  by  agreement  between  the 
Company  and  the  interurban  and  suburban  companies,  approved 
by  the  City  Council,  or,  failing  agreement,  by  the  Council  itself. 
The  City  may  require  the  Company  to  use  such  station  for  the 
storage  of  cars  to  be  used  for  rush  hour  purposes  and  shall  approve 
plans  and  specifications  for  its  construction.  (Sec.  22.)  The 
compensation  to  be  paid  by  the  Companies  using  the  station  shall 
be  fixed  by  the  City  Council  in  the  manner  provided  for  fixing 
the  compensation  for  the  use  of  Company  tracks  by  suburban 
companies.  The  Company  shall  construct  such  tracks  as  will 
permit  of  the  tracks  of  the  station  to  be  connected  with  those  of 
the  Company,  but  the  owner  or  owners  of  the  Station  shall  con- 
struct all  tracks  in  the  station  and  connections  with  the  Company's 
tracks.       (Sec.  22.) 

Division  of  Revenues  of  Inter-City  Lines: 

The  Company  operates  in  connection  with  the  St.  Paul  City 
Railway  Company  inter-city  lines  between  St.  Paul  and  Minne- 
aix)lis.  The  Grant  provides  that  fares  collected  on  such  lines, 
within  the  City  limits  on  trips  to  St.  Paul,  shall  be  credited  to 
the  St.  Paul  Company,  and  that  fares  collected  within  the  City 
limits  of  St.  Paul  on  trips  to  Minneapolis  shall  be  credited  to  the 
Minneapolis  Company.  Expenses  of  the  inter-city  lines,  including 
interest  and  maintenance,  incurred  east  of  a  point  midway 
between  the  two  cities,  shall  be  borne  by  the  St.  Paul  Company ; 
those  incurred  west  of  such  a  point  shall  be  borne  by  the 
Minneapolis  Company.     (Sec.  24.) 


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